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Econom ic
jfagg Review
F E D E R A L R E S E R V E B A N K O F ATLANTA
NOVEMBER/DECEMBER
tIBRARY
JAN 1 0
MON
WED
FORECASTING GNP
Using Monthly Data
Fewer Older Men at Work: Reasons for the Decline
WE95TER
IO
Southeastern Bank Mergers and Acquisitions
1990
Economic
Review
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I S S N 0732-1813
V O L U M E L X X V , N O . 6, N O V E M B E R / D E C E M B E R
1990, E C O N O M I C R E V I E W
2
Forecasting U.S. GNP at Monthly
Intervals with an Estimated
Bivariate Time Series Model
Peter A. Zadrozny
16
Fewer Older Men in the U.S.
Work Force: Technological,
Behavioral, and Legislative
Contributions to the Decline
The author describes a novel approach to estimating a monthly GNP forecasting model, using a
technique that resolves typical problems with
mixed-frequency data.
During the past century the percentage of older
American men who have jobs has dropped. This article is a look at job characteristics, societal attitudes, and legislation that may have brought about
this decline.
Jon R. M o e n
32
F.Y.I.
Robert E. G o u d r e a u a n d
Larry D. Wall
56
Book Review
62
Index for 1990
G e n e D. Sullivan
Southeastern Interstate Banking and
Consolidation: 1984-89
The Energy Crisis and the American Political Economy
by Franklin Tugwell
Forecasting U.S. GNP at Monthly
Intervals with an Estimated
Bivariate Time Series Model
Peter A. Zadrozny
SUN
MON
TUE
WED
THU
FRI
SAT
Conventional methods of constructing econometric models are
typically fraught with problems of using available data efficiently. The
author presents a new method that resolves difficulties with mixed frequency and temporal aggregation of data. (T/jis method also deals with data measurement errors and transmission delays, but these problems are not discussed in this
article.) Using monthly total nonfarm employment data and quarterly U.S. real GNP data from January 1958 to December 1978, the author applies a Kalman filter, often used in engineering and scientific applications, to construct a bivariate time series model for forecasting
employment and GNP. The Kalman filter in a state-space setting is powerful in handling complex samples
because it separates the model's characteristics from those of the sampling scheme.
E
c o n o m i c a n a l y s t s c o n t i n u a l l y att e m p t to comprehend large amounts
of new and revised data to gauge the
current state and future direction of the economy. The data c o m e in many varieties. Rep o r t i n g f r e q u e n c i e s vary. S o m e d a t a , like
b o n d prices, pertain to an instant while other
data, like quarterly gross national p r o d u c t
2
(GNP), represent sums over periods of time.
Some data are newly reported; some are revised, often more than once. Methods of collecting the data differ, and expected variation
from the true value of the item differs widely
among data series.
Analysts approach this variety of data in
many ways: with quantitative tools such as
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
econometric models; with rules of t h u m b ,
intuition, or subjective judgments; or with
some combination of these methods. Whatever their method, analysts face the same
basic problem of using all information in the
available data. Statisticians call this "efficient" use of data, by which they mean that
the data's information is not wasted or distorted. The issue of efficiency arises in almost every e m p i r i c a l e c o n o m i c analysis
because the form of relationships derived
from economic theory does not match the
way the variables are actually measured and
reported.
For example, suppose that one wishes to
forecast U.S. real GNP at monthly intervals.
Economists' theory of production indicates
that GNP is in part determined by total employment. Monetary theory indicates that
GNP is influenced by some monetary aggregate like Ml or M2. But even the most carefully articulated production or monetary theory
will not provide sufficient guidance about how
to use the actual observations on GNP, employment, and money. A particular problem,
with which this article is concerned, is that
GNP, employment, and money are available
at quarterly, monthly, and weekly intervals,
respectively.
This t y p e of p r o b l e m — e f f i c i e n t use of
mixed-frequency data—confronts virtually every economic analyst who uses more than one
time series at a time. The difficulty is typically
c o m p o u n d e d by at least three other data
problems: some variables are observed at a
particular time while others are added up or
averaged over time intervals; observations
are subject to measurement errors; and observations are available only after a delay to
allow for collecting, processing, and transmitting them.
Although these four data problems have
been recognized for some time, they have not
been satisfactorily addressed by conventional
methods used to estimate forecasting models.1 These methods allow very little flexibility
in distinguishing between the forms of data as
they are specified by economic theories and
the ways in which the data are actually measured. Previously suggested solutions involved either wasting or distorting sample
information.
FEDERAL R E S E R V E BANK O F ATLANTA
As a response to these problems, this article briefly describes and applies a time series
estimation and forecasting method that has
the ability to resolve the problems simultaneously in a satisfactory way.2 In view of the novelty of the method, the application in this
article addresses only the first two data problems—mixed frequencies and data summed
or averaged overtime (temporal aggregation).
The remaining problems of measurement errors a n d t r a n s m i s s i o n d e l a y s will b e addressed in a future study.
The method is applied to forecast U.S. real
GNP at monthly intervals with the aid of monthly observations on U.S. total employment. It is
used to estimate directly a monthly time-series
forecasting m o d e l — a vector autoregressive
moving-average (VARMA) model—with monthly
employment and quarterly GNP data.
Problems Caused by Mixed Frequencies and Temporal Aggregation
Methods conventionally used to estimate
time series models and forecast economic
time series, such as ordinary least squares regression and its variants, are designed for data at a single frequency. Consequently, they
generally do not handle mixed-frequency data satisfactorily. A t t e m p t i n g to use o n e of
t h e s e r e g r e s s i o n m e t h o d s w i t h mixedfrequency data, economists have resorted to
one of three options: transforming the data to
a single frequency by adding up, averaging, or
skip sampling the higher-frequency observations (like monthly employment) to the lowerfrequency observations (like quarterly GNP);
transforming the data to a single frequency by
interpolating lower-frequency observations to
the highest frequency in the data; or restricting
the model so that the regression method can
be directly applied. 3 None of these options is
entirely satisfactory.
The author
is an associate
at Washington
State
professor
University.
in the Department
The work underlying
was mostly done while he was a visiting scholar
partment
of the Federal
conversations
T.
Reserve
with William
Bank of Atlanta.
of
Economics
this
article
in the research
He is grateful
R. Bell, David F. Findiey, and
defor
William
Roberds.
3
The first m e t h o d — a d d i n g up, averaging,
or skip sampling the higher-frequency observations—throws away s a m p l e information.
Changing from monthly to quarterly observations in this way involves losing two-thirds of
the observations in the monthly series.
On the other hand, when the goal is to estimate a model, for forecasting or other purposes, interpolation is at best a nuisance and at
worst a source of distortion in the data. In the
context of a sample of monthly and quarterly
o b s e r v a t i o n s , for i n s t a n c e , i n t e r p o l a t i o n
means estimating the missing monthly values
of the quarterly observations. Commonly used
interpolation methods do not use all the available sample information. Statisticians commonly interpolate each time series separately,
using only its relationship to its own previous
values (see, for example, A.C. Harvey and R.G.
Pierse 1984). Economists typically interpolate
with regression methods, which primarily emphasize contemporaneous relationships between variables. However, even the most
sophisticated regression-interpolation method
will generally not be able to exploit all significant relationships within and among data series. 4 M o r e o v e r , to t h e e x t e n t t h a t t h e
interpolation method is inconsistent with the
economic model being estimated, the estimates of the model and subsequent forecasts
will be biased.
Imposing restrictions on a model by limiting certain relationships among its variables is
another, more complex way to handle mixedfrequency data with single-frequency metho d s . In t h e e x a m p l e i n v o l v i n g m o n t h l y
employment and quarterly GNP, these restrictions eliminate all feedback from (quarterly)
GNP to (monthly) employment and reduce
feedback from lagged GNP to GNP to quarterly intervals. Most likely these restrictions on
the model will inhibit its effectiveness. Because virtually any collection of aggregate
economic t i m e series will have significant
feedbacks across all variables and all frequencies, models with arbitrarily restricted feedbacks of lower-frequency v a r i a b l e s will
generally produce suboptimal forecasts.
Mixed-frequency problems are often comp o u n d e d because some variables are only
observed as sums or averages; that is, they
are t e m p o r a l aggregates. 5 The p r o b l e m s
4
caused by aggregation over time are twofold.
First, to estimate a model with data that are
added up or averaged, one must correspondingly add up or average the equations of the
model. However, when this calculation can be
done, it also requires imposing restrictions
like those discussed in the previous paragraph. Moreover, if two or more variables
have different degrees of temporal aggregation that are not multiples of each other, then
the equations of the model cannot be aggregated into a form compatible with the data, fn
such cases, c o n v e n t i o n a l m e t h o d s break
down and cannot be applied at all. Second,
although estimating the model may pose no
problems, with a conventional method one
can only produce forecasts of variables in an
aggregated or averaged form; there is no option to forecast some or all variables in original disaggregated form.
In sum, conventional regression methods,
designed for single-frequency disaggregated
data, are inadequate for estimating and forecasting with multivariate economic time series
models when the data involved are mixed frequency or temporally aggregated. By contrast,
the method outlined in the next section in
principle overcomes these p r o b l e m s in a
completely satisfactory way. 6 Unlike singlefrequency methods, it does not require that
the data be aggregated to the lowest frequency or interpolated to the highest frequency or
that the model be arbitrarily restricted.
An Overview of Estimating and Forecasting with the Kalman Filter
The key to the present method is the use
of a device called a Kalman filter. This device,
often applied to engineering and other scientific problems, allows routine handling of the
sampling complications of mixed frequencies
and temporal aggregation. The basic insight
that brings the Kalman filter into play is to
view the model as operating at the highest
frequency in terms of temporally disaggregated measurements of all the variables. In the
employment-GNP context discussed above,
the fact that GNP is observed only at quarterly
intervals and only as an aggregate over each
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
quarter presents fewer observations of GNP
than actually come from the process that generates the data. If the underlying process generates disaggregated monthly values of both
e m p l o y m e n t a n d GNP, then quarterly G N P
leaves o n e with "missing values" relative to
the observations that could be obtained.
The Kalman filter inherits its ease of handling these and other sampling complications
from t h e state-space representation of t h e
model being considered. Indeed, the Kalman
filter can h a n d l e any s a m p l i n g c o m p l i c a tions—including measurement errors and data transmission delays—as long as they can
be described as linear transformations of the
model's variables. This flexibility derives from
a clean separation, in a state-space formulation, of the characteristics of the m o d e l from
the characteristics of the sampling scheme into two unconnected parts.
Therefore, t h e first s t e p in a p p l y i n g t h e
Kalman filter with a given model is to write the
model in state-space form. A state space form u l a t i o n of a t i m e series m o d e l h a s two
parts—a state vector, together with its law of
motion, a n d an observation e q u a t i o n . The
state vector is a list of variables that summarizes the relevant "state of the world" in the
m o d e l . For a given m o d e l , there are m a n y
ways to formulate a state vector and its law of
motion. In essence, however it is set up, a
state vector consists of current and lagged values of t h e variables a n d d i s t u r b a n c e s of a
model. The state vector and its law of motion
summarize the dynamics of a model, as an entity separate from the way the variables in the
model are observed. The observation (or measurement) equation tells how observations are
made in terms of the state vector. In particular,
it appropriately maps linear combinations of
state variables and optional measurement errors into the vector of observations.
Kalman filtering state-space m e t h o d s derive their power for handling complex samp l e s from t h e s e p a r a t i o n of o b s e r v a t i o n
characteristics from t h e m o d e l e q u a t i o n s .
Setting u p the observation equation to handle such complications is a s i m p l e matter.
Then, given a state-space r e p r e s e n t a t i o n
that incorporates the sampling scheme, t h e
Kalman filter can b e a p p l i e d to formulate a
likelihood function to estimate a m o d e l or
Digitized
F E D Efor
R A LFRASER
R E S E R V E B A N K O F ATLANTA
t o p r o d u c e f o r e c a s t s w i t h an e s t i m a t e d
model.7
This powerful a d v a n t a g e of state-space
Kalman filtering m e t h o d s is contrasted with
the severe limitations of conventional regression methods for handling sampling complications. The absence of a separate observation
equation in conventional regression methods
forces an a t t e m p t t o transform t h e m o d e l
equations to conform to the sampling scheme.
Even when such a transformation is possible,
it usually requires additional assumptions not
motivated by economic theory.
Application to Forecasting GNP at
Monthly Intervals
The f o l l o w i n g e m p i r i c a l a p p l i c a t i o n
demonstrates the usefulness of Kalman filtering as a means for efficiently producing shortterm e c o n o m i c forecasts with up-to-date
values of different economic data that arrive
at different frequencies. In the application, a
VARMA m o d e l was e s t i m a t e d with monthly
observations of U.S. total nonfarm employment and quarterly observations on U.S. real
GNP for the period January 1958 to December
1978. The m o d e l was then used to forecast
e m p l o y m e n t a n d GNP, from o n e to twelve
months, for the period lanuary 1979 to December 1988.
The e m p l o y m e n t data used are produced
and published in Employment and Earnings by
the U.S. Bureau of Labor Statistics. Based on
monthly surveys of payrolls, they represent
totals of all types of employees in nonfarm est a b l i s h m e n t s . The G N P data are p r o d u c e d
and published in Survey of Current Business by
the U.S. Bureau of Economic Analysis. They
are based on numerous surveys and are produced and revised in a lengthy process. 8 Both
data series were obtained in seasonally adjusted form.
The data are historical series that mix revised
early values with preliminary recent values.
They have been treated as being of the same
degree of revision (an approach that is justified
because they are mostly final revisions).
Before the data were used they were transformed into a n n u a l i z e d percentage growth
5
form. This transformation was done for two reasons. First, because GNP and the other aggregate economic variables are typically forecast
in annualized percentage growth form, this data transformation makes the present forecasts
comparable to forecasts of other economists.
Second, putting data in this form makes them
covariance stationary—in particular, removing
their trends. Because trends dominated variations in the untransformed data, a failure to remove them would have resulted in inefficient
use of the sample information.9
Chart 1 suggests that monthly employment
figures contain useful information for forecasting GNP at monthly intervals.10 Clearly, variations of e m p l o y m e n t and GNP follow each
other quite closely; somewhat less clearly,
within-year variations in employment appear
to slightly lead variations in GNP. Of course,
other monthly series may contain additional
useful information for forecasting GNP, but,
given the limited objectives of the present
study, other series were not considered. 11
That the two series contain useful information for forecasting is more precisely revealed
by serial and cross-serial correlation coeffi-
cients that are summary measures indicating
the presence of lagged linear relationships
(feedbacks). A serial correlation at lag k is a
measure of the degree of linear relationship
between a variable and values of itself k periods in the past. A cross-serial correlation at lag
k is a measure of the degree of linear relationship between a variable and another variable
k periods in the past. Like all correlations, serial and cross-serial correlations range from -1
to +1: -1 indicates a perfect negative linear relationship; 0 indicates no linear relationship;
and +1 indicates a perfect positive linear relationship. Once significant feedbacks are indicated by inspecting serial and cross-serial
correlations, the precise nature of the feedbacks is determined by estimating a model. 12
Cross-serial correlations of e m p l o y m e n t
and GNP are displayed in Charts 2 and 3. In
these charts individual correlations are significantly different from zero at about the 95 percent confidence level if they are greater than
or equal to .20 in absolute value. At this level
of confidence, Charts 2 and 3 show significant
feedbacks between employment and GNP at
lags of up to about six months. Charts 4 and 5
Chart 1.
Percentage Growth of Employment and GNP
(January 1958 to December 1988)
Normalized
Value
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
6
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Chart 2.
Monthly Cross-Serial Correlations of Percentage Growth of
Current GNP and Lagged Employment
C(k)
0
6
12
18
Monthly Lags
24
30
36
Chart 3.
Monthly Cross-Serial Correlations of Percentage Growth of
Current Employment and Lagged GNP
Digitized
F E D Efor
R A LFRASER
R E S E R V E B A N K O F ATLANTA
Monthly Lags
7
Chart 4.
Monthly Serial Correlations of Percentage Growth of Employment
Monthly Lags
Chart 5.
Monthly Serial Correlations of Percentage Growth of GNP
C(k)
1.0
8
18
Monthly Lags
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
demonstrate that employment is significantly
serially correlated and GNP is only marginally
serially correlated in this range. These four
charts suggest that a monthly employmentGNP model can be estimated to forecast effectively at least up to six months ahead.
Because monthly employment fluctuations
are the sample information which permits estimation and forecasting at monthly intervals, it
would seem that the most critical correlations
in this respect are the cross-serial correlations
of current GNP and lagged employment in
Chart 2, which reflect feedbacks from employment to GNP. Indeed, these are the most significant correlations in Charts 2 to 5. In the
regression approach to this application, in the
absence of interpolated monthly GNP values,
employment would have to be treated as exogenous. As a result, GNP-to-employment and
GNP-to-GNP feedbacks would not be used in
producing GNP forecasts. Although the GNPto-GNP feedbacks reflected in Chart 5 are only
marginally significant, the GNP-to-employment
feedbacks in Chart 3, although not as significant as the employment-to-GNP feedbacks in
Chart 2, are, nevertheless, quite significant up
to about the eight-month lag.
When all variables in a multivariate system
feed back on each other and on themselves,
as employment and GNP do, efficient forecasting requires that all own and cross feedbacks—that is, all significant serial and
cross-serial correlations—be taken into account. Efficiently forecasting GNP several
months ahead with the present data requires
not only exploiting significant feedbacks from
employment to employment and to GNP, as
regression methods do, but also exploiting
significant feedbacks from GNP to GNP and to
employment, as the present method allows
but regression methods cannot.
The search for the best model began with a
fairly complex model (a bivariate ARMA [3,1]
model) and whittled it down in a series of
stages to a simpler form (a bivariate ARMA
11,11 model). At each stage, the weakest parameters were eliminated, the reduced model was r e e s t i m a t e d , and it was d e c i d e d
whether the reduction was justified on the basis of a criterion designed to seek out the true
data-generating process.13 The resulting estimated model is presented in Table I. 14
Digitized
for
FEDER
A L FRASER
R E S E R V E BANK O F ATLANTA
Considering that the data are in growth form,
the model appears to fit the data fairly well.15
But, because the major goal of time series estimation is to reduce the residuals of the model
to serially uncorrelated "white noise," better
indicators of the adequacy of an estimated
model are serial and cross-serial correlations of
residuals. When these correlations are insignificantly different from zero, the model is adequate because it has captured all systematic
variation in the data overtime: all residual variation is unpredictable white noise. In fact, time
plots of correlations and cross-correlations of
residuals show only a few isolated marginally
significant correlations but do not show any
systematic patterns that would indicate that
the model should be modified or extended
(P.A. Zadrozny 1990). This finding confirms that
the estimated model in Table 1 is adequate in
this respect.16
The next step is to evaluate forecasts produced with the best overall model (see Table 2),
Table 1.
Best Overall Estimated Bivariate
Monthly Employment-GNP Model:
Unrestricted ARMA (1,1)
Maximum Likelihood Estimates
e(f) = .799e(f- 1) + AMg(t(1.75)
(.377)
1) + 2.37 s^t)
(2.54)
-.615e 1 (f-1)-.697e 2 (f-1)
(-.204)
(-.112)
g(t) = .203e(f- 1) + .353g{t- 1) + .634e^t)
(1.19)
(1,228.)
(.140)
+ 1.34 E2{t) + 1.72e1 {t- 1 ) - .613e2 (t- 1 )
(.222)
(.441)
(-.078)
Model-Fit Summary Statistics
Variable
Employment
GNP
Standard Error
2.83
2.82
.228
.472
The estimation period is January 1958 to December 1978; e(t) = percentage growth of employment; g(t) = percentage growth of GNP; erft),
e2(t) = disturbances; t ratios are in parentheses.
9
over the post-estimation period, January 1979
to December 1988. The forecasts were generated as described in Zadrozny (1990) and
were evaluated in several ways in terms of
their root mean squared errors (RMSE). 17
First, Theil U statistics were examined.
For a given variable and a given number of
forecasting steps ahead, a Theil U statistic is
the RMSE of the forecasting method being
e v a l u a t e d d i v i d e d by the RMSE of naive
forecasts, where the naive forecast of a variable any number of steps ahead is the most
recent observation of the variable at the
time the forecast is made. Theil U statistics
provide an internal test of the competitiveness of the model's forecasts. If the model's
forecasts, which cost something to be prod u c e d , have greater errors than the naive
forecasts—that is, they y i e l d Us greater
than one—then they are inferior to the costless naive method. Table 2 shows U statistics all s i g n i f i c a n t l y less t h a n o n e . The
forecasts of the m o d e l in Table 1 are thus
quite competitive in this respect, especially
in short-horizon forecasting. 18
The claim m a d e above that all feedbacks
a m o n g the variables reinforce each other
and thus should b e used in forecasting is
tested next by comparing the Theil U statistics of the model with those of best univariate models for e m p l o y m e n t and GNP. The
criterion for choosing the "best" univariate
model was the same as was used in choosing
the b e s t bivariate m o d e l in Table 1. The
message from comparing RMSEs and Theil U
statistics of the bivariate model with those
of the univariate model is that the accuracy
in forecasting e m p l o y m e n t improves only
very slightly when GNP is used in forecasting
employment but improves dramatically, especially in short-horizon forecasts, when employment is used in forecasting GNP.
Having demonstrated that all available information should be used in forecasting, the
next test is to compare the forecasts of the
best overall m o d e l with those of the best
model obtained with a conventional regression method, shown in Table 3.19 All serial and
cross-serial c o r r e l a t i o n s of t h e m o d e l ' s
residuals were insignificantly different from
zero. T a b l e 4 r e p o r t s m o n t h l y forecastevaluation statistics of the regression mod 10
Table 2.
Forecast-Evaluation Statistics
of Model in Table 1
Employment Forecast-Evaluation Statistics
Months
Ahead
RMSE
Theil U
1
2
3
4
5
6
7
8
9
10
11
12
2.33
2.40
2.56
2.69
2.77
2.83
2.87
2.93
3.02
3.10
3.18
3.22
.576
.592
.632
.664
.684
.699
.710
.724
.747
.767
.786
.796
GNP Forecast-Evaluation Statistics
Months
Ahçaçi
1
2
3
4
5
6
7
8
9
10
11
12
RMSE
2.51
2.79
3.34
3.72
3.85
3.97
4.20
4.14
4.15
4.24
4.25
4.30
Theil U
.437
.485
.582
.647
.670
.692
.731
.721
.723
.738
.740
.749
The forecast-evaluation period is January 1979 to
December
1988. RMSE means root meansquared forecast error. Theil U Statistic = RMSE
of forecast + RMSE of the naive forecast, where
the naive forecast is the most recent observation
at the time the forecast is made.
el, which can be directly compared with those
in Table 2. The comparison shows that the
forecasting p e r f o r m a n c e of t h e p r e s e n t
method is uniformly better—marginally for
employment and significantly for GNP—than
the performance of the regression method, especially for forecasts up to five months ahead.
E C O N O M I C R E V I E W , N O V E M B E R / D E C E M B E R 1990
Table 3.
Best Standard-Method Bivariate
Monthly Employment-GNP Model:
Restricted AR(1)
Table 4.
Forecast-Evaluation Statistics
of Model in Table 3
Maximum Likelihood Estimates
Employment Forecast-Evaluation Statistics
e(f) = .938e(f-1) + 2.31e1(i)
(8.40)
(3.49)
g(f) = .387e(i-1) + 1.11 ei (0 + 1.78e2(/)
(1.60)
(.452)
(1.72)
Model-Fit Summary Statistics
Variable
Employment
GNP
Standard Error
R2
2.84
3.24
.227
.304
The estimation period is January 1958 to December 1978; eft) = percentage growth of employment; g(t) = percentage growth of GNP; erft), e2(t)
= disturbances; t ratios are in parentheses.
All the tests so far were "internal" in the
sense that all the forecast-evaluation statistics
were based on the same employment-GNP
data set. To put the results in Tables l to 4 in
a wider perspective, some comparisons of
the forecasting performance of the best overall model with the forecasting performances
of models developed by others are now conducted. The internal comparisons are rigorous comparisons of forecasting performance
because they are all based on the same variables and model-estimation and forecastevaluation periods. By contrast, the set of
variables and estimation and forecasting periods were different in each study in the external comparisons. Moreover, only one of
the outside studies used monthly data and
made monthly GNP forecasts. Therefore, any
conclusions drawn from the external comparisons are weakened by these data disparities. Nevertheless, as Table 5 shows, even
after taking these differences into account
the forecasts of the best m o d e l p r o d u c e d
with the present method appear to be competitive—indeed, generally better for foreDigitized
F E D for
E R AFRASER
L R E S E R V E B A N K O F ATLANTA 13
Months
Ahead
RMSE
Theil U
1
2
3
4
5
6
7
8
9
10
11
12
2.36
2.42
2.58
2.70
2.79
2.85
2.91
2.96
3.05
3.11
3.18
3.22
.583
.598
.637
.667
.689
.704
.718
.732
.753
.769
.786
.796
GNP Forecast-Evaluation Statistics
Months
Ahead
RMSE
Thçil u
1
2
3
4
5
6
7
8
9
10
11
12
2.96
3.17
3.51
3.79
3.91
4.01
4.24
4.18
4.18
4.27
4.27
4.32
.516
.552
.612
.660
.680
.698
.738
.727
.728
.744
.744
.752
The forecast-evaluation period is January 1979 to
December
1988. RMSE means root meansquared forecast error. Theii U Statistic = RMSE
of forecast + RMSE of the naive forecast, where
the naive forecast is the most recent observation
at the time the forecast is made.
casts up to three months. In particular, the
present forecasts are impressive in these
comparisons because they were produced
with a m o d e l involving substantially fewer
variables. 20
Table 5.
Comparison with Other Forecasts
for Comparable Periods
Quarterly GNP Forecast RMSEs
Quarters
Ahead Table 2 Roberds
1
2
3
4
3.34
3.97
4.15
4.30
3.87
3.85
4.15
4.34
McNees
4.25
3.61
3.78
3.82
Monthly GNP Forecast RMSEs
Months
Ahead
Table 2
Trghan
1
2
2.51
2.79
1.81
3.34
Sources: "Roberds" data are from Table 2, part 1,
column 2 in Roberds (1988) and reflect forecasts over quarter 1, 1977, to quarter 1, 1987.
"McNees" data are the average of columns 1 to
4 in Table 2 in McNees (1986) and reflect forecasts over quarter 2, 1980, to quarter 1, 1985.
"Trehan" data are from Table 2, part 2, column
3 in Trehan (1989) and reflect forecasts over
quarter 4,1978, to quarter 4,1988.
Conclusion
This article has demonstrated the feasibility and usefulness of applying a Kalman filtering method to directly estimate a monthly
model of employment and GNP, when employment is observed monthly and GNP is
observed quarterly, and of using the estimated m o d e l to produce monthly forecasts of
GNP. The forecasts were evaluated by internal
tests and by comparisons with forecasting
performance of models developed by others.
The tests and comparisons showed that the
method is able to produce competitive GNP
forecasts using o n l y e m p l o y m e n t as t h e
source of monthly information. The method is
computationally much more demanding than
12
standard regression methods; however, with
some experience, an application of the scope
of the one presented in this article could be
conducted in an afternoon on a personal computer. 21
As noted in the introduction, the Kalman
filtering m e t h o d can routinely h a n d l e the
sampling complications of mixed frequencies,
temporal aggregation, measurement errors,
and data transmission delays. In the application mixed frequencies and temporal aggregations were fully accounted for, measurement
errors were somewhat accounted for, and
transmission delays were ignored. 22 It would
be useful to extend the present application to
fully account for measurement errors and data
transmission delays and to use, in addition,
other sources of monthly information such as
industrial production and retail sales.
Measurement errors and transmission delays are intimately connected. Consider the
case of GNP data. The first observations on
GNP for a given quarter are available fifteen
days after the end of the quarter. As more survey data come in and are processed, more accurate estimates of GNP are released. In fact,
there is a succession of releases of GNP, each
presumably more accurate than the previous
one. The next two releases, after the so-called
fifteen-day release, are forty-five and seventyfive days after the end of the quarter. 2 3 A
plan for future application of the m e t h o d
discussed here is to extend the present application to take such r e v i s i o n s — t h a t is,
measurement errors and transmission delays—fully into account, not just in GNP but
also in any other monthly variables used. 24
Finally, although the application in this article was a purely statistical exercise in the
sense that no economic theory was directly
used to specify and restrict any equations in
the model, the method could equally well be
used to estimate, forecast, and make inferences with models directly motivated by an
economic theory. That is, the method could
b e a p p l i e d to a w i d e range of e c o n o m i c
models such as dynamic simultaneous equations models and rational expectations models. 25
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Notes
' S o m e e x a m p l e s of f o r e c a s t i n g in w h i c h
convention-
q u a r t e r l y d i f f e r e n c e s in t h e t r a n s f o r m a t i o n to percent-
al s i n g l e - f r e q u e n c y m e t h o d s a r e a p p l i e d t o m i x e d -
age growth form. T h e r e h a s b e e n s o m e d i s c u s s i o n late-
frequency data are Corrado and G r e e n e
2
3
(1988),
ly a b o u t w h e t h e r t r e n d s s h o u l d
T h e p r e s e n t a r t i c l e is d r a w n f r o m a w o r k i n g
paper
W h i t e m a n a n d R o b e r d s 1990). A g e n e r a l i z a t i o n of differ-
(Zadrozny 1990) t h a t d e s c r i b e s t h e m e t h o d a n d appli-
e n c i n g , which recognizes t h a t v a r i a b l e s m a y share com-
cation in m u c h greater d e t a i l a n d s o p h i s t i c a t i o n . This
m o n t r e n d s , is t o t r e a t t h e m as c o i n t e g r a t e d (see, for
working p a p e r is a v a i l a b l e from t h e P u b l i c I n f o r m a t i o n
e x a m p l e , E n g l e a n d G r a n g e r 1987 a n d F o u n t i s
D e p a r t m e n t of t h e Federal Reserve B a n k of Atlanta.
Dickey 1989). The m o d e l can a l s o l e g i t i m a t e l y b e estim a t e d w i t h u n d e t r e n d e d d a t a if a p p r o p r i a t e restric-
o u t n o n c o n s e c u t i v e v a l u e s , t h a t is, at greater t i m e inter-
t i o n s are p l a c e d on t h e p a r a m e t e r s . This t e c h n i q u e has
vals t h a n t h o s e in t h e original series. For e x a m p l e , to
b e e n u s e d e s p e c i a l l y in Bayesian a n a l y s e s (see, for ex-
r e d u c e a m o n t h l y e m p l o y m e n t series to quarterly val-
a m p l e , D o a n , Litterman, a n d S i m s 1984, L i t t e r m a n 1986,
ues b y t e m p o r a l aggregation o n e w o u l d average t h e
a n d R o b e r d s 1988). D a t a from 1947 to 1957 w e r e a l s o
three m o n t h l y v a l u e s of each quarter. H o w e v e r , to re-
c o n s i d e r e d , b u t t i m e p l o t s a n a l o g o u s to C h a r t 1, ex-
duce the e m p l o y m e n t series by skip s a m p l i n g
one
t e n d i n g f r o m 1947 t o 1988, r e v e a l e d t h a t t h e trans-
w o u l d pick t h e first (or s e c o n d or third) m o n t h l y v a l u e
f o r m e d data d i s p l a y n o t a b l y greater variations from
1947 to 1957 t h a n in later years. Therefore, to b e sure of
a stationary s a m p l e , o n l y d a t a from 1958 o n w a r d were
L i t t e r m a n ' s (1983) m e t h o d , which e x p l o i t s t w o levels of
e d r e g r e s s i o n - i n t e r p o l a t i o n m e t h o d . N e v e r t h e l e s s , it
c a n n o t e x p l o i t all p o s s i b l e ( p o t e n t i a l l y
used.
l0
Hereafter, " e m p l o y m e n t " a n d "GNP" m e a n e m p l o y m e n t
significant)
a n d G N P in t r a n s f o r m e d a n n u a l i z e d p e r c e n t a g e growth
cross-serial c o r r e l a t i o n s b e t w e e n l o w - f r e q u e n c y varia b l e s b e i n g i n t e r p o l a t e d a n d high-frequency v a r i a b l e s
form.
" F o r e x a m p l e , F i t z g e r a l d a n d M i l l e r (1989) u s e d t o t a l
serving as interpolators.
hours worked (average hours worked t i m e s total em-
Y e t a n o t h e r p r o b l e m m a y b e cross-sectional aggrega-
p l o y m e n t ) in l i e u of t o t a l e m p l o y m e n t ; T r e h a n (1989)
tion; t h a t is, s o m e o b s e r v a t i o n s are s u m s of several dif-
u s e d industrial p r o d u c t i o n a n d retail s a l e s in a d d i t i o n
ferent v a r i a b l e s . In fact, s o m e o b s e r v a t i o n s c o u l d
to employment.
be
s i m u l t a n e o u s l y cross-sectionally a n d t e m p o r a l l y aggre-
6
12
al f o r m u l a s for s a m p l e variances a n d covariances, modi-
h a n d l e cross-sectional a n d t e m p o r a l aggregation.
fied o n l y to s k i p t e r m s in s u m m a t i o n s w h i c h c o u l d n o t
O b v i o u s l y , t h e p r e s e n t m e t h o d a l s o has its l i m i t a t i o n s .
b e c o m p u t e d b e c a u s e of m i s s i n g v a l u e s of G N P . Each
First, c o m p a r e d with regression m e t h o d s , it is c o m p u t a -
of t h e s u m m a t i o n s w e r e n o r m a l i z e d b y t h e actual num-
t i o n a l l y m u c h m o r e d e m a n d i n g s o t h a t t h e s i z e s of
b e r of t e r m s t h a t w e r e c o m p u t e d . In Chart 5 correlations
m o d e l s t h a t it can h a n d l e are m u c h m o r e l i m i t e d . Sec-
at n o n q u a r t e r l y intervals ( I , 2, 4, 5, . . .) were set t o zero
o n d , r e g a r d l e s s of h o w it is e s t i m a t e d , a m o d e l
to i n d i c a t e t h a t t h e y c o u l d n o t b e c o m p u t e d with pure-
must
ly q u a r t e r l y d a t a .
Identification
c o n d i t i o n s for e s t i m a t i n g V A R M A m o d e l s w i t h single-
13
9
Parameters w e r e c o n s i d e r e d " w e a k e s t " w h e n their esti-
f r e q u e n c y d a t a t h a t are n o t t e m p o r a l l y a g g r e g a t e d are
m a t e s a n d t ratios ( e s t i m a t e s d i v i d e d by
well k n o w n ; t h e i r e x t e n s i o n s to m i x e d - f r e q u e n c y tem-
s t a n d a r d errors) were b o t h less than .1 in a b s o l u t e val-
estimated
porally a g g r e g a t e d d a t a are as y e t u n k n o w n . Fortunate-
ue. T h e criterion for s e l e c t i n g t h e " b e s t " m o d e l was t h e
ly, in a g i v e n a p p l i c a t i o n t h e r e a r e i n f o r m a l e m p i r i c a l
Akaike (1973) i n f o r m a t i o n criterion, m o d i f i e d to correct
ways of c h e c k i n g w h e t h e r i d e n t i f i c a t i o n c o n d i t i o n s are
for f i n i t e - s a m p l e b i a s as s u g g e s t e d b y Hurvich a n d Tsai
satisfied.
8
T h e r e p o r t e d correlations were c o m p u t e d with t h e usu-
g a t e d . The m e t h o d p r e s e n t e d here can s i m u l t a n e o u s l y
satisfy a set of i d e n t i f i c a t i o n c o n d i t i o n s .
7
and
S k i p s a m p l i n g m e a n s r e d u c i n g a t i m e series by p i c k i n g
serial correlations in residuals, is t h e m o s t sophisticat-
5
by
d i f f e r e n c i n g or by l i n e a r regression (see, for e x a m p l e ,
of each quarter.
4
be removed
F i t z g e r a l d a n d M i l l e r (1989), a n d T r e h a n (1989).
(1989).
For a d e t a i l e d d i s c u s s i o n of s e t t i n g u p a s t a t e - s p a c e
14
In T a b l e s I a n d 3 t h e moving-average parts in t h e esti-
r e p r e s e n t a t i o n of a V A R M A m o d e l for a s a m p l e involv-
m a t e d e q u a t i o n s h a v e b e e n n o r m a l i z e d s o t h a t t h e dis-
ing m i x e d f r e q u e n c i e s a n d t e m p o r a l a g g r e g a t i o n
t u r b a n c e s , e , a n d s2,
and
have unit variances and
are
t h e n u s i n g t h e K a l m a n filter w i t h t h e o b t a i n e d state-
u n c o r r e l a t e d with each o t h e r a n d t h a t t h e current v a l u e
space representation to estimate the model,
of t h e s e c o n d d i s t u r b a n c e , e 2 (t), is a b s e n t from t h e em-
see
Z a d r o z n y (1990).
p l o y m e n t e q u a t i o n . T h e n o r m a l i z a t i o n is necessary to
C a r s o n (1987) a n d Y o u n g (1987) d i s c u s s in d e t a i l t h e
s o l v e an i d e n t i f i c a t i o n p r o b l e m ( e l i m i n a t e
c o m p i l a t i o n of G N P d a t a .
p a r a m e t e r s ) a n d , therefore, d o e s n o t restrict t h e m o d e l .
redundent
Data are s a i d to b e (covariance) stationary w h e n their
W i t h o u t further i d e n t i f y i n g a s s u m p t i o n s , e,(l) a n d e 2 (t)
m e a n v a l u e s (central t e n d e n c y ) a n d variances (disper-
c a n n o t b e v i e w e d as r e s p e c t i v e " p u r e "
sion) are c o n s t a n t o v e r t h e s a m p l e . A failure to p u t d a t a
a n d G N P shocks; t h e y can o n l y b e v i e w e d as unspeci-
into stationary form prior to u s i n g t h e m u s u a l l y results
in i n e f f i c i e n t e s t i m a t e s of t h e m o d e l a n d b i a s e d test
employment
fied linear c o m b i n a t i o n s of such p u r e shocks.
'^An R 2 goodness-of-fit statistic of .228 for e m p l o y m e n t is
statistics. E c o n o m i c d a t a are typically n o n s t a t i o n a r y be-
fair a n d an R2 of .472 for G N P is g o o d . A l t h o u g h R2 is n o t
c a u s e of t h e p r e s e n c e of strong trends. In t h e applica-
a r e l i a b l e statistic h e r e , it n e v e r t h e l e s s is u s e f u l be-
tion, trends were r e m o v e d by taking m o n t h l y
c a u s e it s u m m a r i z e s t h e fit of t h e i n d i v i d u a l e q u a t i o n s
Digitized
for
FEDER
A L FRASER
R E S E R V E B A N K O F ATLANTA
and
13
c a u s e t h e m e t h o d treats t h e t w o v a r i a b l e s symmetrical-
in t h e m o d e l . As in ordinary least s q u a r e s (OLS) estimation, R2 is c o m p u t e d as I m i n u s t h e variance of residuals d i v i d e d by t h e variance of o b s e r v a t i o n s . But, u n l i k e
ly.
I9
TO m a k e t h e c o m p a r i s o n , a search was m a d e for a b e s t
in O L S , t h e p r e s e n t e s t i m a t i o n criterion is n o t e n t i r e l y
l6
m o d e l s u b j e c t t o t h e t y p e of restriction t h a t w o u l d b e
g e a r e d t o w a r d m a x i m i z i n g t h e fit of i n d i v i d u a l e q u a -
necessary in e s t i m a t i o n with a c o n v e n t i o n a l regression
t i o n s . T h e r e f o r e , it can h a p p e n t h a t t h e R2s
m e t h o d . Although the maximum likelihood
of s o m e
p r o g r a m of t h e p r e s e n t m e t h o d was actually u s e d , the
isfy 0 < R2 < 1.
i m p o s i t i o n of restrictions d e l i v e r s results e q u i v a l e n t to
what regressions can p r o d u c e .
O n e s o u r c e of s k e p t i c i s m a b o u t t h e a d e q u a c y of t h e
m o d e l m i g h t b e t h a t o n l y t h r e e of t h e p a r a m e t e r s are in
20
F o r e x a m p l e , R o b e r d s (1988) u s e s a total of e i g h t vari-
t h e r a n g e of s t a t i s t i c a l s i g n i f i c a n c e b y c o n v e n t i o n a l
a b l e s : real G N P , i m p l i c i t G N P deflator, u n e m p l o y m e n t
s t a n d a r d s . An e s t i m a t e d p a r a m e t e r is significantly dif-
rate, b u s i n e s s fixed i n v e s t m e n t , m o n e t a r y b a s e , y i e l d
ferent from zero at a b o u t t h e 90 p e r c e n t c o n f i d e n c e lev-
on t h r e e - m o n t h Treasury bills, Atlanta-Fed d o l l a r index,
el w h e n its t ratio is greater t h a n a b o u t 1.6 in a b s o l u t e
a n d c o m m o d i t y price i n d e x . Trehan (1989) u s e s a total
value. ( N o t e t h a t t h e i m p r o b a b l y high 1 v a l u e of 1,228 is
of four variables: real G N P , total e m p l o y m e n t , industrial
u n d o u b t e d l y t h e result of n u m e r i c a l errors i n h e r e n t to
t h e n u m e r i c a l m e t h o d for c a l c u l a t i n g s t a n d a r d errors
p r o d u c t i o n , a n d retail sales.
21
gram written by t h e a u t h o r . T h e p r o g r a m was c o m p i l e d
e d p a r a m e t e r s a r e a d m i t t e d l y s o m e t h i n g to b e con-
with t h e Lahey C o m p u t e r S y s t e m s FORTRAN 77 compil-
c e r n e d a b o u t a n d w i l l b e g i v e n a t t e n t i o n in f u t u r e
er (version 3.00) a n d was run on a 386 p e r s o n a l c o m p u t -
e x t e n s i o n s of this work. T h e o n l y t h i n g to d o in this re-
er o p e r a t i n g at 20 M H Z clock s p e e d with a n u m e r i c a l
s p e c t is to try to c o m e u p with restrictions on p a r a m e -
coprocessor. It t o o k less than t w e n t y m i n u t e s to d o all
ters t h a t result in h i g h e r t ratios w i t h o u t r e d u c i n g t h e
of t h e c o m p u t a t i o n s u n d e r l y i n g t h e figures a n d t a b l e s
f i t — a n d forecasting a b i l i t y — o f t h e e s t i m a t e d m o d e l . In
r e p o r t e d in Z a d r o z n y (1990).
22
d o just t h a t . S e e , for e x a m p l e , D o a n , L i t t e r m a n , a n d
S i m s (1984), L i t t e r m a n (1986), a n d R o b e r d s (1988).
R e v i s i o n s c o n t i n u e , with t h e next o n e b e i n g a n n u a l . Every July t h e p r e v i o u s t h r e e years' releases are revised
L e t RMSE(/?) d e n o t e t h e R M S E of ^-months a h e a d forep l o y m e n t , RMSE(fc) is t h e s q u a r e root of t h e a v e r a g e
T h e e x t e n t to which m e a s u r e m e n t errors w e r e accounte d for is d i s c u s s e d in Z a d r o z n y (1990, 22-24).
23
to b e c o n s i s t e n t with a n n u a l survey d a t a .
casts of a v a r i a b l e . T h e n , for e x a m p l e , in t h e case of em24
U s i n g state-space m e t h o d s , C o n r a d a n d C o r r a d o (1979),
v a l u e of |e(f + ft) - e(t + /?|t)|2 o v e r t h e range t = S + 1 to I
Howrey (1984), a n d S c a d d i n g (1987) a c c o u n t e d for the
+ T - ft, w h e r e e(f + ft) d e n o t e s t h e o b s e r v a t i o n on em-
different p r e c i s i o n s of p r e l i m i n a r y a n d r e v i s e d d a t a b u t
t + ft, e(t + /e|t) d e n o t e s t h e forecast
did not consider transmission delays. On the other
p l o y m e n t in m o n t h
of e m p l o y m e n t in m o n t h t + ft m a d e in m o n t h t, S + 1
h a n d , B o r d i g n o n a n d Trivellato (1989), a l s o using state-
d e n o t e s l a n u a r y 1979, a n d T d e n o t e s D e c e m b e r 1988.
s p a c e m e t h o d s , s t u d i e d t h e effects of t i m e l i n e s s of da-
Of course, in t h e case of G N P , with g{t + /?) a n d g{t + ft +
ta b u t d i d n o t s i m u l t a n e o u s l y w o r k w i t h
i) d e f i n e d a n a l o g o u s l y t o e(( + ft) a n d e(t + 6|i), |g{t + ft) -
a n d revised data.
git + ft\t)\2 c o u l d o n l y b e c o m p u t e d for v a l u e s of t + ft,
which r e p r e s e n t t h i r d m o n t h s of quarters.
l8
T h e a p p l i c a t i o n was carried o u t with a F O R T R A N pro-
which was u s e d . ) T h e generally low t v a l u e s of estimat-
fact, t h e role of Bayesian VAR or BVAR e s t i m a t i o n is t o
17
estimation
e q u a t i o n s can b e negative. In OLS, R2s necessarily sat-
25
preliminary
S e e , for e x a m p l e , l u d g e e t al. (1980) a n d H a n s e n a n d
S a r g e n t (1989) for d i s c u s s i o n s of d y n a m i c s i m u l t a n e o u s
A l t h o u g h t h e p r i n c i p a l i n t e r e s t is in e v a l u a t i n g
GNP
e q u a t i o n s m o d e l s a n d rational e x p e c t a t i o n s m o d e l s .
forecasts, e m p l o y m e n t forecasts are also r e p o r t e d be-
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FEDERAL R E S E R V E BANK O F ATLANTA
Statistics 4 (January
1990.
15
Fewer Older Men in the U.S.
Work Force: Technological,
Behavioral, and Legislative
Contributions to the Decline
Jon R. Moen
Older people are becoming a larger share of America's population, yet their participation rate in the labor force has
shrunk since the late nineteenth century. This study examines two schools of thought that attempt to explain this
decline. The author finds little evidence to support the view that changing attitudes toward older workers account for
their dwindling numbers in the work force. He finds more valid the theory that credits the decline to the nation's
shift from an agrarian to a manufacturing economy. In addition, since the 1930s government policies such as New
Deal employment legislation and Social Security have created incentives that work to institutionalize retirement as
a career stage.
S
ince the late 1800s the labor force participation rate among American men
aged sixty-five and older—the number
actively employed or seeking employment as a
percentage of the total population of American
men in that age g r o u p — h a s continually declined. As the nation's p o p u l a t i o n includes
more older people, it is increasingly important
to consider how social and economic policies
influence the number of older Americans in the
work force, the number of hours they work, and
their skills; future labor force size and quality
will be influenced by the effects of such poli-
The author
is an assistant
professor
ministration,
Department
of Economics
sity of Mississippi.
economist
This research
at the Federal
Reserve
in the School of Business Adand Finance,
was conducted
Bank
thanks William Curt Hunter for his extensive
ticle into its current form and B. Frank
for helpful
comments.
16
at the
when
of Atlanta.
Univer-
he was an
The
author
help in shaping
the ar-
King and Mary
Rosenbaum
cies. These policies in turn d e p e n d to some extent on decisionmakers' understanding of the
factors that have influenced the secular (that is,
long-term) decline in labor force participation
by men aged sixty-five and older.
Two broad explanations, with differing policy implications, have attempted to account for
the decline in labor force participation by older men up to the 1930s. The first is a "new history" or behavioral approach, which asserts
that the labor force participation rate has declined among older persons because changing
attitudes have resulted in both age-based job
discrimination and loss of status, independent of any changes in the economy or in the
economy's existing p r o d u c t i o n technology.
Second, a more traditional view emphasizes
factors in the economy such as technological
change or occupational shifts.1 Explanations
of the steep decline after the 1930s have centered on economic factors, particularly gov-
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
emmental actions, like the institution of Social Security, and the accelerating development of private pension plans.
The broad-based nature of the decline is
demonstrated clearly by the data presented
in Table 1. These data show that between
1860 and 1900 the overall participation rate
decline occurred among rural, nonfarm residents. Since 1900 the decline in labor force
participation has been steep and systematic and has occurred across all h o u s e h o l d
types. The fact that the decline in participation rates of o l d e r m e n has b e e n b o t h
widespread and pronounced during the
twentieth century has been viewed by disciples of the behavioral approach as prima facie evidence that older workers are being
systematically excluded from the work force.
This view draws much of its intellectual support from a historical perspective that has
developed over the past few decades of the
F E Dfor
ERA
L R E S E R V E B A N K O F ATLANTA
Digitized
FRASER
place of older workers and the aged in American society. This article is a review of some
of the arguments economic historians have
advanced to support each of these views. It
is also an examination of the role twentiethcentury legislation and governmental regulation may have played in the decline.
Modernization Theory—The Technological (Structural) Shift View
Most historical interpretations of the secular decline in labor force participation rates
among workers aged sixty-five and older before 1930 can b e loosely categorized under
the heading of modernization theory (see, for
example, Abraham Epstein 1928). Stated simply, modernization theory contends that the
secular decline can be readily explained by
17
Table 1.
Labor Force Participation Rates of American
Men Aged Sixty-Five and Older, 1860 to 1980
{percent)
Household
Type
1860
1900
1950
1980
All
75.59
69.98
46.99
25.60
Farm
79.78
80.34
61.81
57.64
Nonfarm
70.60
62.84
43.97
24.49
Urban
64.19
65.30
—
25.02
Rural
77.62
73.29
—
27.06
Nonfarm,
rural
73.74
61.20
22.96
Sources: Data for 1860 are from the Batemen-Foust Sample of Northern Households, 1860 (Ann Arbor, Mich.:
Interuniversity Consortium for Political and Social Research [ICPSR]) and from the Sample of Older
Males in Four Large Cities, 1860, available from the author. Data for 1900 are from the 1900 Public
Use Sample, Stephen Graham, The 1900 Public Use Sample Users Handbook, no. 7825 (Ann Arbor,
Mich.: ICPSR, 1981). Data for 1950 are from the 1950 Public Use Sample, Census of Population, 1950:
Public Use Microdata Sample, Technical Documentation (Preliminary), U.S. Bureau of the Census
(Washington, D.C.: U.S. Government Printing Office, 1984). Data for 1980 are from the 1980 Public
Use Microdata Sample, U.S. Bureau of the Census.
the shift in the United States from an agrarian
economy to one based on manufacturing and
mass production. The emphasis on efficiency
in this new economic order made older workers obsolete.
Agrarian societies characteristically allow
older workers to set their own pace and to
turn over gradually the more strenuous farming tasks to younger household members. In
addition, owning land brings older persons respect and social status and a degree of control
over their children through the prospect of
withdrawing inheritances. According to the
modernization view, the shift to manufacturing and the loss of control over property have
diminished older persons' status in the eyes
of the young. Stated differently, the shift resulted in the falling marginal productivity of
older members of the labor force and the substitution of younger for older workers. Real
changes in the economy are seen as the ultimate causes of the decline in importance of
older persons in the work force.
18
Brian Gratton's (1986) study of elderly
workers in Boston provides, on the surface,
some support for the modernization theory.
Gratton suggests that the increasing importance of the lower-participation manufacturing
sector relative to the high-participation farming sector was responsible for the decline in
the overall labor force participation rate of
older men at the beginning of the twentieth
century, even t h o u g h p a r t i c i p a t i o n rates
changed little within either sector.
The Shift Away from Agriculture. The declining number of farms and the increase in
the urban population in the United States
have long been regarded as important contributors to the fall in the labor force participation rate among men sixty-five and older.
As noted above, it is believed that farming allowed older workers to set their own pace or
let y o u n g e r workers u n d e r t a k e the more
strenuous tasks. On the other hand, factory
jobs were thought to have permitted older
workers fewer e m p l o y m e n t alternatives as
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
their ability to work at a continuous pace diminished. Unlike farming, manufacturing separated the home and workplace. Rather than
work part-time or at less demanding jobs, older men working in manufacturing were more
likely to retire completely.
Although the link between the declining
importance of agriculture and the decline in
labor force participation rates for older workers is conceptually simple, the mechanism
through which the shift affected the overall
participation rate is undoubtedly more complex. Gratton intuitively described how the
shift may have affected overall participation:
"As the economy industrialized, the relatively
low participation of older men in the industrial work force began to dominate their general
participation rate" (1986, 21).
Gratton is correct in pointing out that structural changes in the economy could have
caused participation rates of older men to fall
in the aggregate, independent of workers' behavior within either the manufacturing or farming sector. However, closer scrutiny of the
data reveals that labor force participation
rates did decline in some household types.
In 1860 roughly 65 percent of the men aged
sixty-five and older lived in farm households.
By 1980 this share had fallen below 3 percent.
At the same time, the percentage of older
men living in rural nonfarm households remained about 25 percent, while the percentage of men living in urban areas increased
from about 11 percent to approximately 71
percent. As can be seen in Table 1, labor force
participation rates of men in farm and urban
households remained virtually constant between 1860 and 1900. They probably declined
little through the 1930s. Gratton (1986) has
shown that the participation rate of men sixtyfive years old and older in Boston was constant at about 64 percent through 1920 and
had fallen only a few points by 1930.2 Most of
the fall in farm and urban participation rates
occurred after the 1930s. For nonfarm households in rural areas and small towns, the decline was steady from 1860 through 1980 and
was greater than that of farm a n d u r b a n
households.
Table 1 shows that because much of the
decline in labor force participation occurred in
the nonfarm, rural labor force, a farm/nonfarm
F E D E R A L R E S E R V E B A N K O F ATLANTA
distinction reveals more about the sources of
the decline than the urban/rural distinction
does. This farm/nonfarm distinction is also apparent in the participation rates estimated
from a sample collected by Fred Bateman and
lames Foust for northern households for 1860,
although their sample covers only rural areas.3
About 45 percent of the rural households covered by Bateman and Foust's sample were
not located on farms. These households contained laborers, craftsmen, and various other
workers who helped support the rural economy.
Structural Shifts in Occupations and Labor
Force Participation Rates. The effect of shifting structure of occupations on older men's labor force participation can be examined in
more detail by dividing the rate into household types and assigning each a weight equal
to that group's importance in the population.
In that way t h e i n f l u e n c e of c o m p o n e n t
changes on the overall labor force participation rate of men aged sixty-five and older can
be assessed. (See the appendix for a formal
derivation.) This decomposition reveals that
overall labor force participation can change if
certain occupations are becoming more or less
important in the economy, even if the underlying propensity for individuals to remain at
work in given occupations does not change. Although it cannot be interpreted as a behavioral model, the equation can nevertheless be
useful in revealing trends and relationships
not immediately apparent in aggregate series
of labor force participation rates.
As the data in the table in the appendix indicate, between 1860 and 1900 about onethird of the total participation decline came
from the increasing weight attached to nonfarm households in the overall average. The
rest of the decline was primarily because of
falling participation rates in nonfarm rural
households. Of the three periods examined in
the table in the appendix, the fall in overall
p a r t i c i p a t i o n was s m a l l e s t — a b o u t 7 percent—between 1860 and 1900.
The importance of declining participation
rates among men aged sixty-five and older increased between 1900 and 1950 as they accounted for about 80 percent of the overall
decline of 33 percent. Falling participation rates
of older workers appear even more significant
19
between 1950 and 1980, accounting for 83 percent of the overall decline of 46 percent.
To some extent this decomposition analysis
c o u l d b e v i e w e d as p r o v i d i n g e v i d e n c e
against a structural shift explanation of the decline in participation rates before the middle
of the twentieth century. However, for most of
this period about 75 percent of the older male
p o p u l a t i o n lived in either farm or u r b a n
households, where their participation rate remained fairly constant between 1860 and 1930.
The remaining 25 percent lived in households
with declining participation rates. The reasons
for the decline are not yet clear, although
across time the older portion of male population aged sixty-five and older in nonfarm rural
households increased fairly rapidly, at least
before 1950. The increasing proportion of older men may have reduced the overall participation rate of men aged sixty-five and older,
even though their age-specific rates changed
little in rural nonfarm households.
The insights provided by the decomposition of the overall participation rate support
Gratton's claim that the structural shift away
from agriculture was the major cause of the
decline in the labor force participation rate of
men sixty-five and older; his findings appear
to be at least 75 percent correct. The decline
in the participation rate of older men in nonfarm rural households, however, dominates
the effect of shifting weight between farm and
urban households, at least in an accounting
identity sense, if the aging argument given
above proves to be correct, the overall decline could well be more the result of structural a n d d e m o g r a p h i c c h a n g e s t h a n of
changes resulting from changes in attitudes
toward older workers.
Distributions of Jobs by Age—
Behavioral Evidence
As compelling as the modernization theory
might be, it is by no means immune to criticism. Clarence Long (1958) anticipated what is
perhaps the most convincing argument
against the modernization theory more than
three decades ago. In his important study of
the U.S. labor force, he points out that while it
20
is possible that industrialization and technological progress may have m a d e obsolete
those older workers who could not keep pace
in the changed work environment, the new
machinery may have also lessened the need
for sheer physical stamina. Thus, by making
many tasks easier, older workers could have
stayed on the job longer. Generally, however,
another approach gained currency after 1970.
In particular, the behavioral or "new history"
view perceives older workers as having been
systematically discriminated against simply
because they were old, which in turn resulted
in their increasing loss of access to jobs in
manufacturing. This connection is hard to rationalize using standard economic theory.
That is, modernization theory argues that if
the value of marginal product of older male
workers declined below the given wage rate,
it would be expected that firms would substitute younger, more productive workers for the
now expensive older workers. The new history
view makes no such assumptions about the
value of marginal product of older workers.
Several researchers have examined the loss
of access to manufacturing and other industrial
jobs by older men. Using the distribution of
jobs by age for specific industries or cities as an
indicator of discrimination, these researchers
have indeed shown that older men were not
distributed evenly across occupations.
Gratton (1986) has produced age distributions by occupation for Boston men between
1890 and 1950 from decennial census data. His
results show an increasing share of men aged
sixty-five and older in service (perhaps "servant") occupations across time. The proportion
of men sixty-five and older who were professionals and higher-level white-collar workers
was fairly stable, and the proportion who were
blue-collar workers declined only slightly. Although one might view this data as supporting
the behavioral or attitudinal explanation of the
participation decline, Gratton actually concludes from his overall analysis of this data
that rapid occupational and industrial change
rather than discrimination based on age were
most important in contributing to the loss of
occupations among older men. Older workers
who lost jobs tended to have trouble finding
new ones, while workers who stayed with a
firm did so because they had developed skills
E C O N O M I C R E V I E W , N O V E M B E R / D E C E M B E R 1990
the firm valued. Again, mature industries that
were not changing rapidly tended to have older work forces. Gratton emphasizes that looking only at cross-sectional data can result in
misleading interpretations of age distributions
of workers by occupation either by misinterpreting age cohort effects or by assuming that
a particular cross section reflects a turning
point in attitudes toward older workers.
Roger Ransom and Richard Sutch (1986)
examine several cross sections from late
nineteenth-century state and national censuses and from the Michigan furniture industry.
Like Gratton, they point out that histories of
workers' career paths are more useful than cross
sections in determining the extent and evolution of "deskilling" or "retirement on the job,"
two terms they use to describe how firms shifted older workers to less strenuous and less
skilled occupations rather than eliminating
them altogether. Ransom and Sutch's age distributions show a disproportionate number of
older men in such unskilled jobs as janitors or
guards, a fact they cite as evidence that older
workers tended to move down the occupational
ladder within a firm. Their interpretation of the
evidence is questionable, however, because
the workers' career histories are not known.
These older workers in unskilled jobs could
have come from other firms, or they could have
been unskilled workers all their lives.
N. Sue Weiller (1989) looks at age distributions from the 1925 New York State Census
and an employment survey conducted by the
National Civic Federation in 1926. With these
data she constructs the ratio of men sixty-five
and older currently holding a particular job to
those of the same age group who had held the
job at an earlier time. She interprets a high ratio as indicating that older men were moving
into the job later in life. Occupations with the
highest ratios i n c l u d e elevator operators,
guards, and janitors. Weiller found a low ratio,
which indicates that fewer men remained in
the occupation later in life, among factory
workers, industrial laborers, and machinists.
It should be pointed out, however, that a high
ratio means that more older workers were
coming into the occupation, not that a higher
proportion of older men were employed in
the particular occupation than the average for
all industries. For example, factory workers ac-
FEDERAL R E S E R V E BANK O F ATLANTA
counted for 12.5 percent of employed men
aged sixty-five and older, and elevator operators accounted for 1.1 percent (Weiller 1989, 75).
Although the studies by Gratton (1986),
Ransom and Sutch (1986), and Weiller (1989)
focus on the distribution of jobs by age for different time periods, they also show that older
workers were distributed unevenly across occupations. It is hard to discern a pattern, however, that would attribute the unevenness to
age discrimination or at least show increasing
discrimination across time.
Weiller's ratios of current to former occupations show that there were several jobs in the
group that older workers could take if they
had lost a better, higher-paying position. Such
"retirement" jobs do not, however, account for
a majority of the jobs held by employed men
sixty-five and older. Indeed, jobs with high ratios tended to employ a lower share of the
older male work force than did more standard
jobs like factory operatives, craftsmen, or foremen (see Weiller 1989, Table 2). While it is
clear that the age distributions show that
some jobs held by older workers were "retirement" jobs, it is nevertheless the case that a
large share of the older male work force was
employed in traditional occupations in the
mid-1920s.
The age distributions presented by Ransom and Sutch (1986, 22) from the decennial
censuses for 1870, 1880, and 1900 show that
within each year older workers were not evenly distributed across occupations and that the
distribution of older workers across occupations changed little between 1870 and 1900.
The number of workers aged sixty and older
as a share of workers sixteen and older increased slightly in the total labor force and in
most categories. Even in categories like "iron
and steel workers" or, more broadly, "industrial workers" the representation by older men
in the work force did not decline. This finding
is surprising because these types of jobs are
the ones identified by modernization theory
as the ones most likely to have been cut off
from older workers by the rapid pace of technological change and industrialization.
Gratton's (1986) age distributions, defined
as the percent of men sixty-five and older relative to all men in certain occupations, reveal
no overwhelming evidence that older workers
21
were increasingly being denied access to particular jobs. Their representation as iron and
steel workers increased slightly between 1890
and 1930, for example. Even though older men
made up an increasingly larger share of janitors, elevator operators, and guards, Gratton
(1986, 83) points out that such jobs accounted
for only about 7 to 8 percent of the jobs held
by older men between 1920 and 1950. Gratton's study, along with Ransom and Sutch's
(1986) evidence from the decennial censuses,
does not indicate that older men were increasingly losing representation in the nonagricultural work force. Apparently within industries
there was some sorting by age across occupations, but the sorting remained stable into the
1930s. In the work of Gratton, Ransom and
Sutch, and Weiller it is hard to see the effect of
increased discrimination by age as posited by
the attitudinalists and some modernists.
Additional Age Distribution Evidence. The
evidence discussed so far provides an incom-
plete summary of the occupational distribution of older workers across time. Several
samples drawn from the manuscript schedules of the U.S. census can help to build a picture of the types of jobs older men were most
likely to hold between 1860 and 1980. The addition of certain evidence from 1950 and 1980
is particularly important because some current research has suggested that government
policy starting in the New Deal is responsible
for hastening the decline in the labor force
participation of men aged sixty-five and older
(for example, Gratton 1986 and Jon R. Moen
1987).
Tables 2-4 present the age distributions of
male workers in several broad categories of
occupations between 1860 and 1950. The categories reflect the characteristics of occupat i o n s that may h a v e b e e n m o r e or less
favorable to the continued e m p l o y m e n t of
older workers. For example, farmers were selfemployed and could vary their work effort as
Table 2.
Age Distributions of Occupations
Rural Men, Northern United States, 1860*
{percent)
Age
Farmer
Professional
Skilled
Service
Labor
Other
None
All
15-19
4.1
3.9
4.9
23.3
29.9
3.8
53.9
18.0
20-24
9.4
15.0
14.6
18.4
26.9
24.7
18.7
15.8
25-34
25.9
32.0
34.1
26.9
22.7
38.7
10.1
23.9
35-44
24.2
24.3
22.6
15.3
9.9
22.1
4.1
17.6
45-59
24.7
20.2
17.1
12.1
7.2
7.2
4.0
16.3
60-69
8.3
3.7
4.5
3.8
2.5
2.6
3.3
5.5
70-79
2.9
0.9
1.9
0.3
0.8
0.4
3.7
2.3
80+
0.5
0.1
0.4
0.0
0.2
0.4
2.2
0.7
1,126
3,500
365
Number in
Sample
15,129
7,829
235
4,963
33,147
* Northern states for this sample are Connecticut, Illinois, Indiana, Kansas, Maryland, Michigan, Minnesota, New
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Vermont, and Wisconsin.
Source: Estimated from the Bateman-Foust Sample.
22
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Table 3.
Age Distributions of Occupations
All Men, United States, 1900
(percent)
Age
Farmer Professional
Skilled
Service
Labor
Other
None
All
15-19
1.3
1.8
7.5
12.9
22.5
9.8
47.5
14.8
20-24
7.2
7.1
13.4
20.1
20.7
9.5
12.3
14.4
25-34
23.9
26.6
29.6
29.5
25.0
26.2
6.8
24.5
35-44
24.3
26.5
25.1
18.6
15.7
26.2
4.1
19.4
45-59
28.7
25.4
17.5
14.2
11.8
19.1
6.8
17.4
60-69
10.2
9.0
5.2
3.8
3.4
6.9
7.3
6.1
70-79
3.8
3.3
1.6
1.0
0.9
2.0
10.3
2.7
80+
0.7
0.3
0.1
0.0
0.1
0.4
4.8
0.7
Number in
Sample
7,057
2,801
5,564
3,378
550
3,087
33,067
10,630
Source: Estimated from the 1900 Public Use Sample.
Table 4.
Age Distributions of Occupations
All Men, United States, 1950
(percent)
Age
Farmer
Professional
Skilled
Service
Labor
Other
None
All
15-19
2.1
1.0
5.2
9.1
19.6
—
39.8
13.0
20-24
5.7
5.0
12.0
12.1
16.7
—
9.3
10.7
25-34
20.3
24.8
27.9
23.3
21.3
—
7.2
21.6
35-44
25.9
30.7
26.5
21.4
17.2
—
4.7
21.1
45-59
30.0
29.7
21.6
23.8
17.1
—-
8.7
20.8
60-69
12.1
7.2
5.9
8.4
6.6
—
11.8
8.1
70-79
3.5
1.6
0.8
1.8
1.4
—
13.3
3.6
80+
0.4
0.2
0.1
0.2
0.2
—
5.4
1.1
Number in
Sample
2,606
3,943
10,172
4,307
4,051
—
5,466
30,545
Source: Estimated from the 1950 Public Use Sample.
FEDERAL R E S E R V E BANK O F ATLANTA
23
they grew older. Laborers include unskilled
workers, outdoor laborers, and unskilled factory workers. Service workers e n c o m p a s s
store clerks, janitors, elevator operators, and
the like. Skilled workers include factory operatives as well as self-employed craftsmen, although it is not possible to determine if a
worker was self-employed. Professionals and
proprietors include managers, plant foremen,
and those in professional occupations such as
lawyer, physician, and teacher.4
"Labor" and "service" occupations consist e n t l y e m p l o y e d a h i g h e r p r o p o r t i o n of
younger workers between 1860 and 1950 than
d i d other occupations. Nevertheless, the
shares of younger workers in these occupations declined over time, possibly because
more younger men were spending increasing
time in school (John Pencavel 1986, 19-21). On
the other hand, occupations like "farmer,"
"professional," and "skilled" tended to have a
higher proportion of older men in their work
forces. In the case of farmers, the proportion
of older men has grown somewhat since 1860,
as has the share of older skilled workers. The
category "skilled workers," however, by 1950
had the lowest proportion of older workers
(aged sixty and older) of all the occupational
categories. The early effects of pensions and
Social Security may be responsible for this
decline. Skilled factory workers made up one
of the more widely covered employee groups
in the early years of Social Security retirement
insurance payments, while farm laborers and
the self-employed were not yet covered.
Tables 5-7, which display the distribution
of workers in a particular age group across occupations, present a different viewpoint from
that of Tables 2-4, which show the age distribution of workers within an occupational category. For example, in Table 5, 63 percent of
men aged thirty-five through forty-four in 1860
were farmers, while 4.7 percent were professionals or proprietors. Reading down a column in Tables 5-7 allows comparison of an
occupation's importance across cohorts. In
1860 only 3.5 percent of men aged thirty-five
to forty-four had no occupation, while 22.5
percent of men in the seventy to seventy-nine
cohort had none.
Table 5.
Shares of Cohorts Employed in Different Occupations
Rural Men, Northern United States, 1860
{percent)
Age
Farmer
Professional
Skilled
Service
Labor
Other
None
Number in
Sample
15-19
10.5
0.7
2.9
1.4
39.3
0.2
44.9
5,950
20-24
27.0
3.2
9.7
1.3
40.0
1.1
17.7
5,252
25-34
49.4
4.5
15.1
1.2
22.4
1.2
17.7
7,935
35-44
63.0
4.7
13.6
1.0
13.3
0.9
3.5
5,817
45-59
69.4
4.2
11.1
0.8
10.5
0.3
3.6
5,390
60-69
68.4
2.3
8.5
0.8
10.7
0.3
9.0
1,831
70-79
57.3
1.3
8.6
0.1
8.0
0.1
22.5
752
80+
36.8
0.5
5.9
0.0
6.4
0.5
50.0
220
Reading across a row gives the distribution of occupations for a particular age group. Reading down a column
gives the share in each cohort that is in a particular occupation.
Source: Estimated from the Bateman-Foust Sample.
24
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Table 6.
Shares of Cohorts Employed in Different Occupations
All Men, United States, 1900
{percent)
Service
Labor
Other
None
Number in
Sample
8.5
8.9
48.8
1.1
29.9
4,900
4.2
15.7
14.2
46.2
1.1
8.0
4,772
20.8
9.2
20.4
12.3
32.8
1.8
2.6
8,084
35-44
26.7
11.6
21.8
9.8
26.0
2.3
2.0
6,413
45-59
35.2
12.4
16.9
8.4
21.7
1.8
3.7
5,751
60-69
35.7
12.5
14.3
6.3
18.2
1.9
11.2
2,017
70-79
29.5
10.1
10.0
3.6
10.0
1.2
35.5
898
80+
22.4
3.5
3.0
0.4
5.6
0.9
64.2
232
Age
Farmer
Professional
15-19
1.8
1.0
20-24
10.7
25-34
Skilled
Reading across a row gives the distribution of occupations for a particular age group. Reading down a column
gives the share in each cohort that is in a particular occupation.
Source: Estimated from the 1900 Public Use Sample.
Table 7.
Shares of Cohorts Employed in Different Occupations
All Men, United States, 1950
(percent)
Age
Farmer
Professional
15-19
1.4
1.0
20-24
4.6
25-34
Number in
Sample
Service
Labor
13.3
9.9
19.9
—
54.6
3,983
6.0
37.3
15.9
20.7
—
15.6
3,273
8.0
14.8
43.0
15.2
13.0
—
6.0
6,603
35-44
10.5
18.8
41.8
14.3
10.8
—
3.9
6,448
45-59
12.3
18.5
34.7
16.2
10.9
—
7.4
6,337
60-69
12.7
11.5
24.3
14.7
10.9
—
26.0
2,474
70-79
8.4
5.7
7.2
6.9
5.2
—
66.6
1,095
80+
3.0
1.8
1.8
2.1
2.4
—
88.7
332
Skilled
Other
None
Reading across a row gives the distribution of occupations for a particular age group. Reading down a column
gives the share in each cohort that is in a particular occupation.
Source: Estimated from the 1950 Public Use Sample.
F E D E R A L R E S E R V E B A N K O F ATLANTA 27
Between 1860 and 1950, a decreasing share
of each successively older age group is emp l o y e d in every o c c u p a t i o n a l c a t e g o r y
Several categories, however, show that the
proportion of each successive cohort in the
category fell off less rapidly than in other categories. Skilled workers and farmers show fairly
steady shares of workers across most cohorts
in 1860. The same is true for 1900. Both years
showed a decline in the share of each successive cohort after age twenty-four employed as
laborers. It was probably easy to enter such
jobs early in life and then to leave as various
skills were acquired. Nevertheless, a large
share of workers aged sixty and older were
still employed as laborers in 1860 and 1900.
By 1950 laborers and farmers included a much
smaller share of older workers. Indeed, in all
job categories in 1950 a sharp drop-off appears between age groups sixty to sixty-nine
and seventy to seventy-nine in the share of
the cohort employed. That the decline appears in all categories suggests that something common across occupations rather than
characteristics specific to the occupations
themselves was affecting employment after
the early 1900s.
Like the evidence presented earlier by other researchers, the age and occupation distributions in Tables 2-7 d o not i m m e d i a t e l y
support the contention that age discrimination
increased in the late nineteenth and early
twentieth centuries. This conclusion does not
necessarily imply that older workers were not
discriminated against, either because of decreased productivity or s i m p l e p r e j u d i c e
against the aged. Some occupations do have
older workers disproportionately represented.
Rather, it can be inferred that whatever discrimination or prejudice may have existed did
not increase over time. Not until 1950 is there
any evidence of systematic disappearance of
older workers from the labor force, and then
the decline is apparent across all occupations.
Economic and Governmental Factors
Leading to the Decline
The labor force participation rate of men
aged sixty-five and older remained fairly con-
2 6
stant at about 60 percent between 1910 and
1930. Then, after at least twenty years of relative stability, it fell by one-third in twenty
years. Certainly the Great Depression was immediately responsible for some of the decline. Perhaps as early as 1940, however, and
definitely by 1950, participation was falling
across all types of households, farm as well as
nonfarm rural and urban. The decline has continued steadily through today. A changing mix
of occupations does not account for much of
the decline after 1950.
Economists have offered many theories,
but none seems to explain the decline adequately. William G. Bowen and T. Aldrich
Finegan's (1969, 374) catalog of potential
sources of the labor force participation decline between 1948 and 1965 shows increases
in "other income," including Social Security
benefits, accounting for around half. However,
the effect of Social Security and private pensions on retirement is a subject of continuing
d e b a t e a m o n g e c o n o m i s t s . (See Edward
Lazear 1986, 325-30, for a survey of the literature.) For example, Gratton (1988) has shown
that in 1950 relief payments for the aged under Title I of the Social Security Act may have
affected labor force participation more than
payments under Title II of the act did.
Whatever in fact initiated the latest decline, changed attitudes toward older workers
d o not appear to be a significant factor. As
hinted at earlier, the federal government may
have had an important role in changing the
status of older workers through New Deal legislation. The Social Security Act of 1935 is usually cited as the key piece of social legislation
responsible for beginning the massive withdrawal of older men from the work force. In
addition, several other pieces of legislation
may have equally affected the status of older
workers, even if unintentionally. The National
Industrial Recovery Act, which authorized the
National Recovery Administration in 1933, the
National Labor Relations Act in 1935, and the
Fair Labor Standards Act of 1938 all made a
difference.
Social Security was designed to aid older
workers directly, either by providing aid to
those who had lost jobs or, as William Graebner (1980) and Carol Haber (1983) have argued, by drawing them out of the labor force
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
to open up jobs for younger workers. The effects of Social Security, however, could not
have been felt immediately because, under
the 1935 act, payments were not to have begun until 1942. (Later revisions moved payments forward to 1940.) The effects of the
National Industrial Recovery Act, the National
Labor Relations Act, and the Fair Labor Standards Act could have been felt much sooner.
The N a t i o n a l I n d u s t r i a l Recovery Act,
passed in 1933, authorized the National Recovery Administration to allow industries to
collude to set output quotas and raise prices
to increase profits. To diminish what were
then thought to be free competition's most
destructive aspects, industries were instructed to establish codes of fair competition to
prevent individual firms from undercutting
each other's profits. The industry codes approved by the National Recovery Act also
contained clauses that established minimum
wages and m a x i m u m weekly hours, after
which overtime was to be paid. The intent
was to spread a given n u m b e r of hours of
work among more workers while limiting output and maintaining or raising real wages. The
number of industrial employees working in an
industry covered by a code grew rapidly, and
within a year almost 95 percent of industrial
workers may have come under the protection
of an approved code.
By limiting hours of work and at the same
time supporting or raising wage rates, the National Recovery Act codes gave employers an
incentive to release their least productive
workers and retain those who could work
more intensively. In other words, employers
now had a reason to discriminate against less
productive workers, including older workers,
who previously had been able to obtain employment because competition had kept their
wages low. The legislation allowed industries
to d e v e l o p a d d i t i o n a l c o d e s , a n d s o m e
a d o p t e d rules under which older workers
could be defined as handicapped on the basis of age alone and receive a wage lower than
the m i n i m u m specified for most workers
(Graebner 1980, 209). In effect, federal government policy had made older workers potentially obsolete. Prejudice against the aged,
as described by David Hackett Fischer (1978)
and others, may have had little effect on old-
FEDERAL R E S E R V E BANK O F ATLANTA
er workers before the New Deal, but the National Recovery Act codes gave employers a
reason to discriminate on the basis of age.
Although the National Recovery Administration was declared unconstitutional in May
1935, the National Labor Relations Act, established that same year, extended most of the
National Recovery Administration's provisions on unionization and collective bargaining. In 1938 the Fair Labor Standards Act
extended most of the provisions on hours of
work and minimum wages that had been established in the National Recovery Administration's industrial codes.
Even if t h e s e pieces of legislation d i d
change employers' attitudes toward older
workers, the relevant question is, how much
did they actually affect the employment of
older workers? Charles Roos, the director of
research for the National Recovery Administration, pointed out that the wage and hour
provisions decreased the employment of several d e m o g r a p h i c groups, including older
workers (1937, 174-75, 193). The m i n i m u m
wage is not a binding constraint in many industries today, but Gavin Wright has shown
that during the 1930s, establishment of the
minimum wage raised wages for some workers in the South, although both the National
Recovery Administration and the Fair Labor
Standards Act a d d e d to u n e m p l o y m e n t of
blacks, another demographic group significantly, if indirectly, affected by the wage and
hour provisions (1986, 220, 223-25). Michael
Weinstein (1980) has shown that the National
Industrial Recovery Act significantly affected
income distribution and hours of work in the
overall economy. Increases in real wages also
contributed to overall u n e m p l o y m e n t , although he does not distinguish any evidence
for different age groups.
The effect of the National Recovery Administration and subsequent legislation on older
men's employment and hours of work is difficult to quantify in the aggregate for the 1930s;
however, the anecdotal evidence makes it
clear that the employment of older men was
not advanced by the National Recovery Administration or the Fair Labor Standards Act.
Pencavel (1986, 13) has noted that the overall
decline in hours worked per week by all men
between 1929 and 1940 was caused in part by
27
Fair Labor Standard Act overtime pay requirements. Since at least 1955, average weekly
hours worked and the labor force participation rate of m e n sixty-five a n d o l d e r h a v e
both fallen, while hours worked per week by
younger men have stayed fairly constant or
have risen slightly (Pencavel 1986, 16). Little
or no direct evidence on work hours by age for
industries in the 1930s is available that would
help identify clearly the effect of the National
Recovery Administration on the labor force
participation rate of older men. Current research i n d i c a t e s t h a t restrictions on work
hours, m i n i m u m wages, a n d o v e r t i m e pay
provisions have not b e e n significant factors
recently in the decline of the labor force participation rate of m e n sixty-five and older.
N e v e r t h e l e s s , such p r o v i s i o n s d u r i n g t h e
1930s may have helped establish the precedent that withdrawal from the labor force later
in life was an appropriate and expected part
of one's career.
Conclusion
The evidence presented and reviewed in
this article does not support the view that older male workers became increasingly cut off
from work during the late nineteenth and early twentieth centuries because of systematic
discrimination or adverse changes in attitudes
toward older m e m b e r s of society. For fairly
broad occupational categories, the age and
occupation distributions show little change in
the representation of older male workers. Although it is clear that some occupations were
increasingly becoming identified as jobs for
older workers, such positions were not a significant proportion of all occupations held by
men sixty-five and older.
Even if a t t i t u d e s toward o l d e r workers
worsened, the most significant development
was t h e e m p l o y m e n t p o l i c i e s of t h e New
Deal, which set the stage for the virtual disappearance of older men from the work force.
Their sudden sharp decline from all occupations b e g i n n i n g around 1950 demonstrates
that retirement is a modern aspect of work,
While the National Recovery Administration
and Fair Labor Standards Act, perhaps inadvertently, may have provided employers with
a reason to furlough older workers, a fartherreaching result of these pieces of legislation
may have been the institutionalization of ret i r e m e n t as a s t a n d a r d stage in t h e life of
one's career. As t h e United States faces a
shrinking supply of younger workers—and a
growing population aged sixty-five and older
who could contribute to t h e work force—in
the next few decades, policies less encouraging to full retirement may become increasingly desirable.
Appendix
The force participation rate, p, is defined as
P = L/N,
(1)
where L is t h e labor force, that is, t h e
summed total of those employed and seeking
employment, and N is the relevant total population. in the context of this article all variables refer to men aged sixty-five and older.
The participation rate in equation (1) can be
rewritten in a manner that allows an examination of changes in subsector participation rates
as well as shifts in the shares of the older male
population in farming and nonfarming. If the labor force, L, is broken into a farm, Lp and non-
2 8
farm, Ln, component, equation (1) can be rewritten as
p = (Lf+Ln)/N.
(2)
A similar decomposition of the population
variable, N, yields, after some manipulation,
p = (Nf/N)(Lf/Nf)
+ (Nn/N)(Ln/Nn),
(3)
which can be rewritten as
p = afpf+anpn.
In equation (4) af and a
(4)
are the shares of the
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
older male population in farming and nonfarming, and Pj- and pn are the participation rates of
older men in the farming and nonfarming sectors. Equation (4) expresses the labor force participation rate as a weighted average of labor
force participation in farming and nonfarming,
where the weights are the shares of the older
male population in farming and nonfarming.
If the shares of the older male labor force in
farming and nonfarming are denoted by /^and ln,
respectively, and equation (4) is rewritten in
percentage rate of change form, the dynamic
behavior of the labor force participation rate can
be examined. Performing these calculations
yields
p = l/af+pß
+ ln{an + pn),
(5)
with the dot indicating the derivative of the
natural logarithm of the particular variable,
which is also the instantaneous rate of change
of the variable. As in equation (4), equation
(5) expresses the overall change in labor force
participation, p, as a weighted average of the
changing shares of m e n living in different
h o u s e h o l d types as well as changing labor
force participation rates within those sectors.
One difficulty with using identities such as
equation (5) with historical census data is that
the census enumerators were not instructed
to record an individual's previous occupation
if he was recorded as currently having no occupation. The application of equation (5) to
historical census data assumed that if a man
with no occupation was living on a farm, his
previous occupation was in farming. Likewise,
for men living in nonfarm households with no
current occupation, it is assumed that their
previous occupation was in the nonfarming
sector.
With the aid of the decomposed participation rate, the relative importance of declining
labor force participation and shifting weights
between farm and nonfarm households from
1860 through 1980 can be examined specifically. Estimated values of the variables in equations (4) and (5) are given in the table below
for the periods 1860-1900, 1900-50, and 195080. These estimates were derived from the
data displayed in Table 1.
The Shift of American Men Aged Sixty-Five and Older
from Farm to Nonfarm Households, 1860-1980
p = afpf +
p=lf(af
Pi =
anpn
+ pf) +ln(an
+ pn)
LFP rate of older males in household type /'
a,- = share of older male population in household type /'
/,•
= share of older male labor force living in household type i (mid-period value)
Pi = average annual rate of change in the LFP rate of older males in household type i
kj
= average annual rate of change in the share of older male population living in household type i
/'
=
f, n (farm, nonfarm)
Values of Variables for Households,
a
f
a
n
1860-1900
P
Pf
Pn
.71
.63
1860
.54
.46
.76
.80
1900
.41
.59
.70
.80
a
a
P
Pf
Pn
-.002
.000
-.003
f
-.007
n
.007
'n
.521
.479
(Continued
FEDERAL R E S E R V E B A N K O F ATLANTA
on next
page)
29
Continued
Values of Variables for Households,
a
a
f
1900-1950
n
P
Pf
Pn
1900
.41
.59
.70
.80
.63
1950
.16
.84
.47
.62
.44
P
Pf
Pn
-.008
-.005
a
a
f
n
.007
-.018
If
<n
.342
.657
Values of Variables for Households,
a
a
f
-.007
1950-1980
n
P
Pf
Pn
1950
.16
.84
.47
.62
.44
1980
.03
.97
.26
.58
.25
n
P
Pf
Pn
.005
-.020
-.002
-.019
a
a
f
-.051
If
In
.146
.853
Notes
1
2
The " n e w history" v i e w p o i n t originated in t h e work of Fis-
s e l e c t e d t o w n s h i p s in t h e n o r t h a n d
c h e r (1978) a n d was further d e v e l o p e d by A c h e n b a u m
states. T h e s a m p l e is drawn from m a n u s c r i p t s c h e d u l e s
(1978), G r a e b n e r (1980), a n d H a b e r (1983), a m o n g others.
of t h e U.S. C e n s u s of 1860 a n d is a v a i l a b l e t h r o u g h the
T h i s f i n d i n g is c o n s i s t e n t with t h e e s t i m a t e for 1860 of
l n t e r u n i v e r s i t y C o n s o r t i u m for Political a n d S o c i a l Re-
64.2 p e r c e n t m a d e by M o e n (1987) b a s e d o n a s a m p l e
search in A n n Arbor, M i c h i g a n .
of m e n a g e d sixty-five a n d o l d e r l i v i n g in N e w York,
4
C o m p l e t e l i s t i n g s of o c c u p a t i o n s in e a c h category are
a v a i l a b l e from t h e a u t h o r .
B o s t o n , P h i l a d e l p h i a , a n d Chicago.
3
north-central
T h e B a t e m a n - F o u s t S a m p l e of N o r t h e r n
Households,
1860, covers 21,118 rural h o u s e h o l d s in 102 r a n d o m l y
References
A c h e n b a u m , W. Andrew. Old Age in a Neu» Land: the
Experience
Since
1790. B a l t i m o r e : T h e l o h n s
American
Hopkins
Force
Participation.
of
Princeton, N.J.: Princeton UniChallenge
of the Aged.
N e w York:
Old in America.
New York:
V a n g u a r d Press, 1928.
America's
History
12 ( S u m m e r
Sixty-Five-.
The
Dilemma
of Old Age in
Past. N e w York a n d London-. C a m b r i d g e Uni-
institution,
Lazear, E d w a r d . " R e t i r e m e n t from t h e L a b o r Force." In
The Handbook
Oxford University Press, 1978.
G r a e b n e r , W i l l i a m . A History of Retirement:
of an American
Science
1988): 171-96.
versity Press, 1983.
Fischer, D a v i d Hackett. Growing
Function
t i r e m e n t in 1950." Social
H a b e r , Carol. Beyond
versity Press, 1969.
E p s t e i n , A b r a h a m . The
P h i l a d e l p h i a : T e m p l e Univer-
sity Press, 1986.
. " T h e N e w W e l f a r e State: S o c i a l Security a n d Re-
Press, 1978.
B o w e n , W i l l i a m G „ a n d T. Aldrich F i n e g a n . Tfie Economics
Labor
G r a t t o n , Brian. Urban Elders.
The Meaning
1885-1978.
and
New
of Labor Economics,
e d i t e d b y O r l e y Ashen-
felter a n d R i c h a r d L a y a r d , vol. 1, 305-56. N e w York:
North H o l l a n d , 1986.
H a v e n , C o n n . : Yale University Press, 1980.
30
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Long, C l a r e n c e . The
Employment.
Labor
Force under Changing
Income
and
Princeton, N.J.: Princeton University Press,
1958.
Planning.
B l o o m i n g t o n , 111.:
Principia Press, 1937.
Weiller, N. S u e . "Industrial Scrap H e a p : E m p l o y m e n t Pat-
M o e n , Jon R. "Essays on t h e L a b o r Force a n d L a b o r Force
Participation Rates: The U n i t e d States from
1860
t h r o u g h 1950." Ph.D. d i s s e r t a t i o n , University of Chicago, 1987.
terns a n d C h a n g e for t h e A g e d in t h e 1920s." Social
ence History
Sci-
13 (Spring 1989): 65-88.
W e i n s t e i n , M i c h a e l . Recovery
and
Redistribution
under
the
NIRA. N e w York: North H o l l a n d , 1980.
Pencavel, John. " L a b o r S u p p l y of M e n : A Survey." In The
Handbook
R o o s , C h a r l e s . N R A Economic
of Labor
Economics,
e d i t e d by Orley Ashenfel-
W r i g h t , G a v i n . Old South,
New South.
N e w York: Basic
Books, 1986.
ter a n d Richard Layard, vol. 1, 3-102. N e w York: North
H o l l a n d , 1986.
R a n s o m , Roger, a n d Richard Sutch. "The L a b o r of O l d e r
A m e r i c a n s ; R e t i r e m e n t o n a n d off t h e Job, 1870-1937."
The journal of Economic
History 46 (March 1986): 1-30.
F E D E R A L R E S E R V E B A N K O F ATLANTA
31
Southeastern Interstate
Banking and Consolidation:
1984-89
Robert E. Goudreau and Larry D. Wall
s late as 1982 interstate mergers and
acquisitions were effectively prohibited in all fifty states and the District
of Columbia. 1 A flurry of changes in state laws
has occurred since 1982, however, and only
three states currently prohibit interstate acquisitions entirely. States have relaxed restrictions on intrastate and interstate banking
largely because of increases in the level and
volatility of interest rates and changes in technology that have allowed foreign and nonbank
firms offering close substitutes for traditional
bank products to lure banks' customers away.
A
These changes in state banking laws have
p e r m i t t e d a restructuring of the b a n k i n g
system that may have a n u m b e r of p u b l i c
policy implications. For example, large-scale
consolidation may complicate deposit insurance reform if the "too-big-to-fail" doctrine is
maintained by increasing the number of banking organizations that become too big to fail.
The authors
search
research
are, respectively,
officer in charge
department.
Wilson for valuable
32
an assistant
of the financial
They
research
thank
economist
David L. Verlander
assistance.
in and the re-
section of the Atlanta
Fed's
and S h e r l e y
However, if this doctrine is eliminated, consolidation could further reform by increasing
the number of organizations subject to discipline by savvy institutional investors. Additionally, if greater consolidation boosts the
efficiency of U.S. banks in global financial markets, the banking system (and perhaps U.S.
nonfinancial corporations) could b e c o m e
more competitive. The U.S. experience may
also p r o v i d e e x a m p l e s to regulators and
bankers in other parts of the world, such as
the European Community, where national barriers to bank mergers and acquisitions are being relaxed.
Although it is too early to know what final
changes consolidation will effect in the banking system, an examination of merger and acq u i s i t i o n activity to d a t e may p r o v i d e
valuable insight about the direction in which
the banking industry is headed. This study is
a review of bank mergers and acquisitions in
the Southeast during the period 1984 through
1989, the year preceding and roughly five
years following enactment of initial interstate
banking laws for the region in July 1985.2 The
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
analysis below starts with a brief look at
changes in the relevant state and federal laws
limiting intrastate and interstate banking. A
variety of interstate banking laws that make
up the "Southeast Compact" are examined.
Following a review of the economic reasons
banks might choose to participate in mergers
and acquisitions, there is a discussion of
trends in four categories of mergers and acquisitions that have affected southeastern depository institutions: intrastate transactions,
interstate transactions within the region, the
acquisition of out-of-region banks by southeastern institutions, and the acquisition of regional banks by out-of-region organizations.
The concluding section contains a review of
the most significant bank holding company
participants in interstate acquisitions for the
Southeast and an examination of their apparent expansion strategies.
Legal Limitations
Intrastate Limits in the Southeast. Consolidation of existing banking organizations can
take several legal forms. First, bank holding
company acquisitions (without the subsequent merger of the acquired institution into
a holding company subsidiary) may provide
additional bank subsidiaries for the acquirer.
Another approach could be for a bank holding
company to structure the transaction solely as
a merger of one of its subsidiary banks with a
subsidiary bank of another holding company
or as a merger with an i n d e p e n d e n t bank.
Third, independent banks (those not affiliated with a holding company) may merge, with
the surviving bank possessing the assets, deposits, and branch offices of the combined organization.
State and local laws constrain these means
of i n t r a s t a t e e x p a n s i o n in various ways.
Branching laws for all southeastern states except Georgia were recently eased to allow
statewide branching, but they remained restrictive for most of the 1984-89 period, which
is the focus of this analysis. 3 During the six
years all of the southeastern states permitted
statewide branching through mergers, and
banking offices of the merged (target) firm beDER
A L R E S E R V E BANK O F ATLANTA
DigitizedF Efor
FRASER
came branch offices of the surviving organization. After 1985 all southeastern states except
Mississippi allowed expansion through multiple bank holding company acquisitions.
Local laws and general laws of local application written by county officials governed
branching rights for Alabama-chartered banks
from 1984 to 1989. The effect of having local
laws for banks in a particular county was to
limit the establishment of d e novo branch
banks to the confines of the county. State
banking statutes in place for most of the period for Florida, Georgia, Louisiana, and Tenn e s s e e explicitly e n u m e r a t e d d e n o v o
branching rights and typically constrained
branching to the parent bank's home county.
(Louisiana, Florida, and Tennessee statutes
permitted statewide branching in 1988, 1989,
and 1990, respectively.) Banking laws in Mississippi, where multibank holding companies
are prohibited, allowed d e novo branch establishment within a steadily expanding geographic radius from the parent bank's home
office until statewide branching was ultimately
permitted in July 1989.4
Interstate Limits—A National Perspective.
National banking laws have also constrained
banking organizations in individual states and
the District of Columbia from acquiring banks
and thrifts in other states.5 In 1927 the McFadden Act (and later its 1933 amendments) effectively limited national banks' branching
activity to a single state at most. Although the
legislation left open the possibility of interstate bank acquisitions through the b a n k
holding company structure, it was not broadly
used for interstate expansion before passage
of the Bank Holding Company Act of 1956.
Nonetheless, concerns about the potential
widespread use of this vehicle provided sufficient reason to prompt adding the Douglas
Amendment, which barred bank holding companies that had not already done so from acquiring banks outside their home state unless
the other state explicitly allowed such acquisitions. 6
The McFadden Act and the Bank Holding
Company Act's Douglas A m e n d m e n t effectively closed the door to full-service interstate
banking from 1956 to 1982, when New York
passed a nationwide reciprocal banking law
and Massachusetts lawmakers took the first
33
step in establishing the New England banking
compact by approving a regional, reciprocal
interstate banking statute.
T h e m o m e n t u m for i n t e r s t a t e b a n k i n g
grew, and by 1985 a n u m b e r of states across
the nation had passed or were contemplating
passage of their individually tailored interstate laws. In addition to such state legislat i o n , a n u m b e r of f e d e r a l s t a t u t e s — t h e
Garn-St Germain Act of 1982, the Competitive
Equality in Banking Act of 1987, a n d the Financial Institutions Reform, Recovery, and Enforcement Act of 1989—have b e e n enacted,
allowing bank holding companies to acquire
out-of-state banks and thrifts.
S o u t h e a s t C o m p a c t . Although individual
state laws vary, southeastern interstate banking statutes typically encompass the states of
A l a b a m a , Arkansas, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North
Carolina, South Carolina, Tennessee, Virginia,
and West Virginia, as well as the District of
Columbia. Not surprisingly, interstate banking
laws for states situated on the outskirts of the
region include neighboring states.
Florida a n d Georgia lawmakers were the
first in the Southeast to approve regional, reciprocal interstate banking statutes. They d i d
so in 1984. (See the box on page 52 for a description of interstate banking laws for southeastern states.) During the s a m e year
Kentucky, North Carolina, and South Carolina
legislators crafted their individual versions of
r e g i o n a l , reciprocal i n t e r s t a t e laws. Tennessee, Maryland, Virginia, and the District of
C o l u m b i a lawmakers followed suit in 1985,
and by 1986 Alabama, Louisiana, and Mississippi had their own interstate laws. Alabama
and Louisiana statutes, however, did not become effective until July 1987, and interstate
transactions for Mississippi banks could not
take place until July 1988. Arkansas legislators
were t h e last in t h e Southeast to a p p r o v e
i n t e r s t a t e b a n k i n g s t a t u t e s . A p p r o v a l in
Arkansas c a m e d u r i n g 1988, b u t interstate
transactions involving Arkansas banks could
not occur until January 1989.
Although most southeastern state laws on
interstate banking remain regional and reciprocal in scope, a few states have d r o p p e d
their initial regional restriction and now operate under statutes that are national and recip-
34
rocal. For example, Kentucky and Louisiana
a d o p t e d national, reciprocal statutes in July
1986 and January 1989, respectively, after initially a d h e r i n g t o provisions requiring reciprocity with southeastern partner states.
District of Columbia law calls for reciprocity
with eleven southeastern states but allows acquisitions of District of C o l u m b i a banks by
bank h o l d i n g c o m p a n i e s o u t s i d e its southeastern region. Acquirers from o u t s i d e the
Southeast, however, must make certain commitments regarding their investments and operations in t h e District of C o l u m b i a . West
Virginia's interstate banking law, which became effective January 1988, has always been
reciprocal and national in scope (Banking Expansion Reporter 1990, 7-10).
Economic Incentives
State a n d federal laws d e t e r m i n e which
mergers and acquisitions are legally permissible, b u t e c o n o m i c incentives d e c i d e which
ones actually occur. A variety of motivations
have been suggested. First, the target bank's
managers and shareholders may want to improve its performance; the acquirer simply
may possess better management. Alternatively, the target's managers and owners may be
risk averse and inclined to turn down potentially profitable loans, while a larger, perhaps
publicly traded, organization could more comf o r t a b l y m a k e s u c h l o a n s b e c a u s e of its
greater diversification or willingness to tolerate a d d e d risk.
A second reason for bank acquisitions may
b e to diversify both the funding sources and
earnings of the acquirer. Large acquirers that
rely on purchased funds may b e especially
interested in buying b a n k s with significant
core d e p o s i t f u n d i n g bases. A l t h o u g h t h e
deregulation of deposit interest rates has reduced cost advantages of relying on core deposits, they are still highly valued because of
their greater stability relative to purchased
funds. 7 Similarly, diversification of earnings,
both geographically and by customer type,
can reduce the overall credit riskiness of a
bank's consumer and commercial loan portfolio.
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Aside from these reasons, some acquirers
believe that as a larger organization they
could take advantage of available economies
of scale or scope. Other organizations may
want to expand enough to preclude being
swallowed by a potential acquirer. Furthermore, managers may move to increase their
bank's size so they can e n j o y the higher
salaries and managerial perquisites larger
banks typically provide. Finally, an acquirer
may wish to increase market power and thereby reduce competition. If a less competitive
environment translates into higher profits or
reduced risk for acquirers, the bank's shareholders can benefit. However, these gains
typically come at the expense of the public,
which must pay higher prices for bank services.8
Merger and Acquisition Activity—
Yearly Changes
After a number of large regional banks consolidated to build their interstate franchises,
the yearly dollar volume of intraregional transactions declined steadily. However, the number of such transactions doubled and spread
across all southeastern states. Out-of-region
banks were very active in purchasing regional
banks throughout the six-year period. Southeastern banks acquired a number of depository institutions outside the region.
The most significant participants in southeastern acquisitions were large bank holding
companies. These large holding companies
took control of substantial asset holdings and
usually acquired a sizable number of banking
firms. With few exceptions, they employed
three main strategies. First, many holding
companies sought to acquire large banks or
thrifts in nearby or distant states and become
major competitors from the start. Later they
increased their market presence by acquiring
smaller banks as opportunities arose. Second,
some companies unwilling or unable to acquire large-scale targets achieved a major
presence through a series of smaller acquisitions. Third, some larger bank holding companies chose to purchase small or mid-sized
banks in contiguous or nearby markets. They
F E D E R A L R E S E R V E B A N K O F ATLANTA
essentially appended the acquired bank's operations to their own.
This study demonstrates the desire, perhaps pent-up demand, for interstate banking.
Many banking organizations, large and small,
sought to expand their banking operations
immediately after laws opened state borders
to interstate transactions. Profitable homestate acquisition targets presumably had become scarce. The primary motivations for
interstate expansion a p p e a r to b e greater
market influence, economies of scale and
scope, and earnings diversification.
Table 1 p r o v i d e s an overall picture of
merger and acquisition activity in the Southeast during the years 1984 through 1989. Ann u a l s u m m a r y figures for mergers a n d
acquisitions approved by federal regulators
appear in the table. The statewide summary
figures presented concern the total number of
transactions and total dollar volume of transactions federal regulators approved during
each of the six years under study. Total asset
values reported are for the acquired banking
organization (target bank) as of December 31
of the year preceding approval. (For example,
for transactions approved by federal regulators during the year 1988, the total asset values for t h e a c q u i r e d b a n k i n g firms as of
December 31, 1987, are used in compiling
summary figures.) The table also provides
yearly totals for t h e region. The different
types of transactions reviewed are (1) intrastate transactions for banking firms located
within each southeastern state, (2) intraregional transactions among depository institutions headquartered within the Southeast, (3)
acquisitions of banking firms outside the region by southeastern banking institutions,
and (4) acquisitions of southeastern banking
firms by out-of-region acquirers.
Several p a t t e r n s are a p p a r e n t in t h e
statewide summary figures. Local economic
conditions appear to be an important determinant of merger activity. Out-of-state acquirers were particularly attracted by strong
growth in Florida. Acquirers from within the
region and from North Carolina and New York
made substantial acquisitions. 9 Georgia and
Tennessee, both of which experienced significant growth for at least part of the period, also
attracted considerable out-of-state interest.
35
Table 1.
Mergers and Acquisitions in Southeastern States*
Regional Acquirer/
Intrastate
State
Transactions
Total
Assets
Nonregional Acquirer/Regional Target
Intraregional
Acquirer
Target
Located In
Located In
TransTransTotal
actions Assets
actions
Transactions
Total
Assets
District of
Columbia
Trans- Total
actions Assets
North
Total
Carolina
Virqinia
New York
Trans- Total
Trans- Total
Trans- Total
Trans- Total
actions Assets actions Assets actions Assets actions Assets
1984
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
8
26
28
5
8
23
319
4,658
1,962
2,164
693
609
98
10,405
1
1,945
1
1,695
2
3,640
3
2
5,493
8,247
3
2
5,493
8,247
4
5
1,474
3,707
5
5
2,066
3,707
1
589
1985
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
14
14
27
18
7
16
1,706
476
1,177
5,190
381
1,468
96
10,398
4
13,239
4
4
4
13,239
1
166
1
166
1986
18
13
26
15
10
17
726
1,736
933
1,183
1,495
972
99
7,045
2
5
7
1
4
2
341
464
3
3,003
1
5,062
1
167
7
5,867
4
3,170
592
1
589
Transactions
State
Total
Assets
Regional Acquirer/
Nonregional Target
Intraregional
Intrastate
Acquirer
Target
Located In
Located In
TransTransTotal
actions
actions Assets
Transactions
Total
Assets
Nonregional Acquirer/Regional Target
District of
Columbia
Trans- Total
actions Assets
North
Total
New York
Carolina
Virginia
Trans- Total
TransTotal Trans- Total Trans- Total
actions Assets actions Assets actions Assets actions Assets
1987
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
11
11
17
18
11
16
766
2,787
973
725
757
991
6
84
6,999
10
7
1,228
1
4
3
261
10
1,489
1,600
7
3
419
265
1
9
10
4,903
7
4
419
1,865
11
4,912
3
1,662
5
514
4
1
9,409
35
1988
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
5
11
6
13
3
11
128
1,618
242
924
338
915
5
4
5
49
4,165
15
1
7
4
1
40
809
598
259
2
53
15
1,759
3
66
1
629
2 1,033
1
5
3
514
66
1989
Alabama
Florida
Georgia
Louisiana
Mississippi
Tennessee
Southeastern
Total
4
6
8
28
2
4
83
137
338
1,510
138
113
3
1
7
52
2,319
15
1
3
2
8
2
1
2
15
57
527
116
1,041
497
2,238
1
84
1
10
401
1
41
12
526
36
3 9,373
1
35
* Total assets are given in millions of dollars as of December 31 of the preceding year.
Sources: Compiled by the Federal Reserve Bank of Atlanta from the Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, 1984-89; Merger Decisions,
Insurance Corporation, 1984-89; and Quarterly Journal, Office of the Comptroller of the Currency, 1984-89.
OJ
-J
Federal Deposit
The largest Georgia acquisitions made by organizations outside the six-state region originated in North Carolina a n d t h e District of
Columbia, whereas the largest out-of-region acquirers of Tennessee banks came from Virginia.
Mississippi and Alabama generally had
slower growth, which encouraged far fewer
out-of-state acquisitions of their banks. The
low rate of interstate acquisitions for the two
states also reflects later trigger dates and an
initial contiguous-state limitation for Mississippi's allowable region. Louisiana experienced by far the worst economic conditions in
the region, but substantially more Louisiana
assets were purchased by out-of-state organizations than in either Alabama or Mississippi.
Although it is possible that the larger size of
the Louisiana transactions aroused greater interest by outside acquirers, it is far more likely that t h e transactions resulted from an
increased willingness on the part of Louisiana
banks to seek financial and managerial support from larger out-of-state organizations. It
is i m p o r t a n t to n o t e that no A l a b a m a ,
Louisiana, or Mississippi banks were acquired
by out-of-region bank holding companies during the 1984-89 period.
Another pattern in the data demonstrates
that the degree of home-market consolidation
is an important consideration affecting an organization's absorption by an out-of-state institution or its ability to acquire banks outside
its state. Florida organizations, for example,
had not made substantial acquisitions of other Florida banks before the advent of interstate banking. Thus, the state's large banks
had not yet consolidated their holdings into
efficient statewide networks. These banks
were in a weak competitive position to look
for acquisition targets outside Florida and
were themselves relatively easy targets for
o u t s i d e acquirers experienced in running
large banking organizations. In contrast, North
C a r o l i n a b a n k s have o p e r a t e d u n d e r a
statewide branching law since the nineteenth
century. North Carolina banks were well positioned to spread throughout the Southeast
with efficient, consolidated operations in their
h o m e markets and the requisite expertise
n e e d e d to run large branch operations in
states where they made acquisitions. Somewhere between Florida and North Carolina
38
banks' experience, Georgia's organizations
have had less time and opportunity to develo p statewide networks than North Carolina
banks but have consolidated more operations
than Florida banks. As a result, North Carolina
and Georgia banks tended to acquire Florida
institutions, and North Carolina banks dominated transactions with Georgia banking organizations. 10
The effect of interstate banking laws can
also be seen in the limited number of organizations outside the region acquired by southeastern banks. Only one large out-of-region
acquisition was completed by a regional bank
d u r i n g t h e 1984-89 p e r i o d : C i t i z e n s and
Southern Corporation of Georgia acquired Citizens and Southern Corporation of South Caro l i n a . 1 1 However, n i n e t e e n s m a l l banks
outside the six-state region were acquired by
southeastern bank holding companies during
the six-year period, and total assets for these
acquisitions equaled $1.1 billion. Tennessee
bank holding companies expanded into Kentucky in 1985 and 1986. In 1988 Alabama bank
holding companies entered Texas and South
Carolina. Alabama and Louisiana banks expanded or commenced operations in Texas,
and Tennessee banks continued to purchase
Kentucky institutions during 1989. During that
year Hibernia Corporation alone acquired ten
small Texas banks with total assets of $401
million.
A third apparent trend for most states is
that large acquisitions tend to be made early.
The peak year for total volume of assets in interstate transactions involving southeastern
organizations was the first full year of the compact, 1985, when $27 billion of Florida and
Georgia banking assets were acquired. Similarly, the biggest years for volume of Tennessee assets acquired were 1986 and 1987
(interstate acquisition of Tennessee banks
was first permitted in the latter half of 1985).
Explanations for this trend lie in the motives
of both acquirers and targets. Large acquirers
wish to take over organizations with substantial market share in the target state, and they
want opportunities to realize significant organizationwide economies of scale or scope.
Moreover, banks that are probable targets try
to find acceptable acquirers before less desirable ones make offers that are too good for
E C O N O M I C R E V I E W , N O V E M B E R / D E C E M B E R 1990
the target's shareholders to refuse. Thus, larger banks interested in being an acquirer or
target have an incentive to find a suitable
partner within t h e first few years after a
change in interstate banking laws.
A fourth trend also appears in the data. The
marked overall increase in interstate banking
transactions apparently reduced bankers' interest in intrastate transactions. Although total
transactions were approximately 100 per year
(except for 1988 and 1989 when only about fifty
transactions occurred), total dollar volume of
southeastern intrastate mergers and acquisitions equaled $10 billion in 1984 and 1985 and
then fell steadily to $2 billion in 1989. This
trend can be accounted for in part by the fact
that during the latter part of the sample period
a number of potential in-state acquirers were
themselves acquired by out-of-state organizations. Thus, some of the transactions labeled
interstate acquisitions probably would have
occurred as intrastate deals if interstate banking had not been an option.
Figures in Table 2 illustrate the dramatic
transfer of state-controlled banking assets to
out-of-state bank holding companies from December 1984 to December 1989. In 1984 only
three Florida banks with $4 billion in total assets were controlled by out-of-state institutions at year's end. These holdings equaled
5.2 percent of total assets for Florida commercial banks and 1.8 percent of total southeastern assets. Out-of-state banks did not control
banks in any other regional states as of December 1984.
Out-of-state ownership of southeastern
banks increased sharply during the next five
years, especially in Florida, Georgia, and Tennessee. In contrast, out-of-state bank holding
companies moved to gain control of only a
modest amount of banking assets in Alabama,
Louisiana, and Mississippi. Accordingly, the
proportion of statewide banking assets held
by out-of-state firms was 35 percent for Florida, 26 percent for Georgia, and 31 percent for
Tennessee, and equaled or fell well below
Table 2.
Summary of Out-of-State Owned Banks,
Southeastern States
1984
State
Number of
Institutions
Total
Assets1
1989
Percent of
Total Assets
Number of
Institutions
Total
Assets2
Percent of
Total Assets
Alabama
0
0
0
3
105
0.3
Florida
3
4,095
5.2
55
49,122
35.0
Georgia
0
0
0
20
16,858
26.0
Louisiana
0
0
0
2
1,394
3.8
Mississippi
0
0
0
2
523
2.6
Tennessee
0
0
0
23
13,931
30.7
Southeastern
Total
3
4,095
1.8
105
81,933
23.8
1
Commercial bank total assets as of December 31, 1984, in millions of dollars.
2
Commercial bank total assets as of December 31, 1989, in millions of dollars.
F E D E R A L R E S E R V E B A N K O F ATLANTA
39
3.8 percent for Alabama, Louisiana, and Mississippi. In December 1989 out-of-state holding c o m p a n i e s c o n t r o l l e d 24 p e r c e n t of
banking assets throughout the Southeast.
Significant Participants
Interstate merger and acquisition activity of
the various large acquirers reflects both the
opportunities available to different banking organizations and the organizations' evolving
strategies. An ex post review of merger and acquisition activity for the major acquirers may
lend some insight into the various strategies
employed by the most active organizations.
The most noteworthy bank holding company participants in regional merger and acquisition activity during the 1984-89 period are
presented in Table 3. Southeastern holding
companies qualify for inclusion if they engaged in at least three interstate acquisitions
of banking firms located anywhere in the nation or made at least one purchase of a banking institution holding assets exceeding $1
billion. Bank holding companies headquartered outside the region qualify for inclusion if
they acquired at least three southeastern
banking organizations or purchased at least
one regional depository institution with assets
greater than $1 billion.
Acquisition activity presented in Table 3
can b e grouped into three broad categories
based on the apparent strategy of the acquirers. First, a bank holding company may take
over a large banking institution that already
has a strong presence in another state's major
banking markets. This large target institution
may compete in a distant or a nearby state.
After making one or more purchases of large
banking firms in another state, the acquiring
bank holding company may then advance its
competitive presence by acquiring smaller
banks in desirable markets as opportunities
arise. By purchasing a large institution, the acquiring holding company may reap the benefits of becoming a major competitor from the
start, realizing available economies of scale or
scope, and diversifying its earnings. Earnings
diversification tends to reduce the credit riskiness of the acquiring bank's loan portfolio be-
40
cause the target bank's current and potential
borrowers usually p r o v i d e variety to the
bank's portfolio through additional sources of
income and employment. A drawback of buying large banks is that a d d e d d e m a n d s are
placed on bank management in controlling
the combined institution's expanded assets.
Another disadvantage of this particular interstate strategy is the likelihood that a large target bank's unanticipated or current financial
problems may depress the parent organization's earnings. Examples of organizations that
appear to be following this competitive strategy include SunTrust in Florida and Tennessee,
First Wachovia in Georgia, Deposit Guaranty
in Louisiana, and Sovran in Tennessee.
A second strategy is to buy a series of small
or mid-sized o r g a n i z a t i o n s until a major
s t a t e w i d e presence is o b t a i n e d . This approach may be necessary when a potential acquirer is unable to reach an agreement with
potential large targets in a state where it wishes to be a major player. This strategy shares
many of the advantages of the first. The disadvantage of this approach is that it takes longer
to obtain the benefits of being one of a state's
large operators, and any number of factors can
i n t e r v e n e to slow t h e d e v e l o p m e n t of a
statewide operation. The advantages of this
approach relative to an immediate big acquisition are twofold: (1) the demands on the acquirer's m a n a g e m e n t to m e r g e t h e two
cultures are reduced (the typically smaller target can more easily conform to the acquirer's
culture) and (2) the probability that the acquirer will be purchasing hidden problems is
r e d u c e d . An e x a m p l e of this strategy is
NCNB's acquisitions in Florida. Although several of NCNB's acquisitions exceeded $1 billion in assets, a s i z a b l e c o m b i n a t i o n of
transactions was needed to provide a statewide
presence in this heavily populated state. After
acquiring Atlantic Bancorporation's $3.8 billion
in total assets in 1985, First Union appeared to
be following in NCNB's footsteps, with numerous smaller acquisitions until 1989. In 1989
First Union dramatically increased its Florida
p r e s e n c e by purchasing Florida National
Banks, an $8 billion organization.
A third strategy for a bank holding company
is to build its interstate presence by purchasing banks, frequently small organizations, in
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
adjacent banking markets of other states.
By d o i n g so t h e acquirer may gain s o m e
economies of scale or scope because of the
propinquity of these markets and can tap the
market knowledge possessed by the target
banks' managers. Moreover, management of
banking operations for smaller banks at nearby locations should not pose serious problems for the parent organization. On the other
hand, earnings diversification benefits for the
acquiring firm are minor because loans held
by small banks add minimal variety to the acquiring bank's portfolio. A clear example of
this strategy is Synovus Financial Corp's acquisitions in Alabama. Synovus's new Alabama banking markets are either in the Alabama
portion of the Columbus, Georgia, banking
market or within 100 miles of the company's
headquarters in C o l u m b u s . Furthermore,
Synovus acquired several banking organizations in the nearby panhandle of Florida. Another example is the acquisition by Union
Planters C o r p o r a t i o n of M e m p h i s , Tennessee, of two M i s s i s s i p p i bank h o l d i n g
FEDERAL R E S E R V E BANK O F ATLANTA
companies located close to company headquarters. The two target banks held $500 million in total assets combined and competed
in northern Mississippi banking markets situated within seventy-five miles of Memphis.
Conclusion
The relaxation of restrictions on interstate
banking in the Southeast led to a marked restructuring of the region's banking industry.
Prior to 1985 when the U.S. Supreme Court
affirmed the constitutionality of regional
banking compacts, banks nationwide were
generally constrained to merging with or acquiring home-state institutions. The desire to
expand through interstate banking is evidenced by the many southeastern banks purc h a s e d a n d t h e large v o l u m e of assets
transferred to the control of banking institutions in other states during the Southeast's
first five years of interstate banking.
41
Table 3.
Southeastern Merger and Acquisition
Activity-Significant Participants*
Acquirer
1984
1985
1986
1987
1988
1989
Alabama
SouthTrust Corporation
Birmingham, AL
($7,769)
Central Bank of
Volusia County
South Daytona, FL
5/22/87 - $60
First National
Bancshares, Inc.
Jacksonville, FL
1/12/88-$32
Sentry Bancshares
Corporation
Roswell, G A
5/9/89 - $57
First Bancshares,
Inc.
Marianna, FL
11/13/87-$66
Melton's Bank
Liberty, TN
2/25/88 - $0.3
Florida Central
Banks, Inc.
Chipley, FL
8/14/89-$14
Bank of Florida
Corporation
St. Petersburg, FL
11/13/87-$116
Latta Bank
& Trust Company
Latta, SC
5/27/88-$13
Florida Community
Banks, Inc.
Bonifay, FL
8/14/89-$21
VistaBanks, Inc.
Ormond Beach, FL
11/13/87-$109
Gulf/Bay Financial
Corporation
Tampa, FL
11/19/87-$35
Central Bancshares of
the South, Inc.
Birmingham, AL
($4,524)
* The acquiring bank holding company's consolidated
played for the acquired (target) banking organization
approval from federal
regulators.
Weslayan Bancshares, Inc.
Houston, TX
1/15/88-$46
City National Bank
of Piano
Plano, TX
11/9/89-$84
total assets, in millions of dollars, are displayed in parentheses.
The total asset value presented is as of December 31, 1989. The figure disis that firm's total assets in millions of dollars as of December 31 of the year preceding the year in which the merger or acquisition
received
Acquirer
1984
1985
1986
1987
1988
1989
Alabama (continued)
First National
Bank of Crosby
Crosby, TX
11/17/88-$7
AmSouth Bancorporation
Birmingham, AL
($8,572)
First Mutual Bank
Pensacola, FL
9/29/87 - $789
Gulf First Holding Corporation
Panama City, FL
2/18/88 -$73
First National
Bank of Destin
Destin, FL
4/28/88 - $79
Florida
Barnett Banks Inc.
Jacksonville, FL
($29,007)
First City Bancorp,
Inc.
Marietta, GA
11/28/86-$457
First Fulton Bancshares, Inc.
Palmetto, GA
1/11/88-$42
ANB Bankshares,
Inc.
Brunswick, GA
12/5/88 - $212
First Federal Savings and Loan Association of
Columbus
Columbus, GA
12/27/88 - $254
Investors Trust Financial Corporation
Duluth, GA
6/9/89 - $58
Table 3 (continued)
Acquirer
1984
1985
1986
1987
1988
1989
Florida (continued)
FMB Financial
Holdings, Inc.
Fayetteville, GA
12/27/88 - $91
Georgia
Citizens and Southern
Corporation
Atlanta, GA
($23,348)
Landmark Banking Corporation
Fort Lauderdale,
FL
7/29/85 - $3,661
Citizens and Southern
Corporation
Columbia, SC
2/4/86 - $2,843
The Farmers & Merchants Bank
Walterboro, SC
9/25/86 - $73
Andrews Bank & Trust
Company
Andrews, SC
10/31/86-$87
Bank of the Islands
Sanibel, FL
11/4/86-$102
Community National
Bank
Kissimmee, FL
11/4/86-$14
First National Bank,
Seminole County
Longwood, FL
11/4/86-$14
Southern Bank
Corporation
Tallahassee, FL
10/5/87 - $53
The Ocean State
Bank
Neptune Beach, FL
10/23/89-$124
Liberty Federal
Savings and Loan
Association
Port Richey, FL
8/11/89-$60
Acquirer
1984
1985
1986
1987
1988
1989
Georgia (continued)
First National
Bank, Winter Park
Winter Park, FL
11/4/86 - $211
SunTrust Banks, Inc.
Atlanta, GA
($31,044)
Trust Company of
Georgia & SunBanks, Inc.
Atlanta, GA & Orlando, FL
1/8/85-$15,523
(Holding Company
Formation)
Hernando Banking
Corporation
Brooksville, FL
3/28/85 - $239
Third National
Corporation
Nashville, TN
11/26/86-$5,062
Peoples Bancshares Inc.
Lebanon, TN
2/10/87-$68
Commercial Bank in
Panama City
Panama City, FL
4/12/88 - $238
SWG Financial
Enterprises
Morristown, TN
3/19/87-$123
London County
Bankshares, Inc.
Lenoir City, TN
4/14/87-$70
Pan American
Bank of Sarasota
Sarasota, FL
7/30/85 - $105
Synovus Financial Corp
Columbus, GA
($2,410)
Northwest Florida
Banking Corporation
Quincy, FL
1/11/88-$81
Farmers and Merchants Bank of Russell County
Phenix City, AL
3/15/89-$39
Fort Rucker National Bank
Fort Rucker, AL
7/20/88 - $40
Vanguard Banks, Inc.
Valparaiso, FL
8/8/89-$143
Bank of Pensacola
Pensacola, FL
11/9/89-$55
Table 3 (continued)
Acquirer
1984
1985
1986
1987
1988
1989
Louisiana
Hibernia Corporation
New Orleans, LA
($6,697)
First State Bank
Pflugerville, TX
8/24/89 - $34
Thousand Oaks
National Bank
San Antonio, TX
9/7/89 - $36
Humble Savings
and Loan Association
Humble, TX
9/15/89-$52
Trinity Valley Savings and Loan
Association
Cleveland, TX
10/6/89-$92
United National
Bank of Piano
Piano, TX
11/9/89-$44
Executive National
Bank
San Antonio, TX
11/16/89-$11
Love Field National
Bank
Dallas, TX
11/16/89-$44
Acquirer
1984
1985
1986
1987
1988
1989
Louisiana (continued)
Greater Texas Bank
North, N.A.
Austin, TX
11/30/89-$28
First National Bank
in Frisco
Frisco, TX
12/7/89-$11
Westheimer Memorial Bank, N.A.
Houston, TX
12/8/89-$48
Mississippi
Deposit Guaranty Corporation
Jackson, MS
($3,745)
Commercial National Corporation
Shreveport, LA
11/27/89-$1,041
Tennessee
Union Planters Corporation
Memphis, TN
($4,003)
United Southern
Corporation
Clarksdale, MS
1/13/89 - $346
National Commerce Corporation
New Albany, MS
9/22/89-$151
Table 3 (continued)
Acquirer
1984
1985
1986
1987
1988
1989
Tennessee (continued)
Steiner Bank
Birmingham, AL
10/6/89-$18
District of Columbia
First American
Bankshares, Inc.
Washington, D.C.
($11,528)
Bank of Escambia,
N.A.
Pensacola, FL
2/16/89-$36
NBG Financial Corporation
Atlanta, GA
6/26/87 - $1,600
New York1
Citicorp
New York, NY
($230,643)
Biscayne Federal
Savings and
Loan Association
Miami, FL
1/20/84 - $1,945
Caribank
Dania, FL
12/9/88 - $629
North Carolina
NCNB Corporation
Charlotte, NC
($66,494)
1
Ellis Banking
Corporation
Bradenton, FL
2/15/84- $1,695
Pan American
Banks
Miami, FL
11/27/85 - $1,563
National Bank of
Florida
Miami, FL
2/14/86-$93
The County Bank
Palmetto, FL
2/13/87-$60
USBancorp Inc.
St. Petersburg,
FL
5/31/88-$49
Southern FloridaBanc Federal Savings Bank
Boca Raton, FL
10/6/89-$143
New York is not included in Florida's (or other southeastern states') regional, reciprocal interstate banking laws. The federal banking laws that allow nationwide acquisitions of commercial banks and
thrifts, usually troubled institutions, are the Garn-St Germain Act of 1982, Competitive Equality in Banking Act of 1987, and Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Acquirer
1984
1985
1986
1987
1988
1989
North Carolina (continued)
Freedom Federal
Savings and Loan
Association
Tampa, FL
10/13/89-$1,402
Southern National
Bancshares
Atlanta, GA
11/27/85 - $79
First Union Corporation
Charlotte, NC
($32,131)
Atlantic Bancorporation
Jacksonville, FL
10/16/85$3,752
Central Florida
Bank Corporation
Dade City, FL
10/24/85 - $178
Citizens DeKalb
Bank
Clarkston, GA
2/14/86-$42
First Bankers Corporation of Florida
Pompano Beach, FL
4/17/86-$1,292
Georgia State
Bancshares, Inc.
Atlanta, GA
8/8/86-$153
Bank of Waynesboro
Waynesboro, GA
9/12/86-$43
First Railroad and
Banking Company
of Georgia
Augusta, GA
9/22/86 - $3,377
Collier Bank
Naples, FL
11/12/86-$38
Roswell Bank
Roswell, GA
2/27/87-$143
Commerce National Bank
Naples, FL
4/6/87 - $43
First North Port
Bancorp
North Port, FL
4/10/87-$71
First Sarasota Bancorporation
Sarasota, FL
4/22/87 - $51
Sarasota Bank and
Trust Company
Sarasota, FL
5/19/87-$24
First State Bank of
Pensacola
Pensacola, FL
9/1/87-$111
Florida Commercial Banks, Inc.
Miami, FL
1/7/88-$984
Florida National
Banks of Florida,
Inc.
Jacksonville, FL
12/22/89 - $7,828
Table 3 (continued)
Acquirer
1984
1985
1986
1987
1988
1989
North Carolina (continued)
Security National
Bank
Fort Meyers, FL
11/12/86-$51
Community Bank
of Manatee
Bradenton, FL
10/28/87-$60
Bank of Believue
Nashville, TN
11/20/87-$9
First Wachovia Corporation
Winston-Salem, NC
($24,041)
Wachovia Corporation & First Atlanta
Corporation
Winston-Salem,
NC & Atlanta, GA
11/4/85-$14,468
(Holding Company
Formation)
Forsyth County
Bank
Cumming, GA
12/15/86- $92
FA Bankshares,
Inc.
Monroe, GA
4/23/87 - $75
First Bank and
Trust Company
Fayetteville, GA
6/6/89 - $35
North Georgia
Bankshares, Inc.
Canton, GA
12/23/87-$47
Virginia
Dominion Bankshares Corporation
Roanoke, VA
($10,119)
Nashville City
Bank & Trust
Company
Nashville, TN
10/20/86 - $589
First Dickson Corporation
Dickson, TN
1/2/87 - $96
First National Financial Corporation
Clarksville, TN
4/1/87-$209
Ashland City Bank
and Trust Company
Ashland City, TN
6/17/87-$53
Merchants &
Planters Corporation
Newport, TN
2/18/88-$120
Citizens Union
Corporation
Rogersville, TN
2/22/88-$170
1984
Acquirer
1986
1985
1987
1989
1988
Virginia (continued)
First Springfield National Corporation
Springfield, TN
8/20/87 - $76
First National Bank
of Sparta
Sparta, TN
11/16/87-$94
Franklin First National Corporation
Decherd, TN
11/27/87 - $55
The Peoples National Bancorp, Inc.
Shelbyville, TN
11/27/87 - $90
UNB Corporation
Fayetteville, TN
11/27/87 - $97
Commerce Union
Corporation
Nashville, TN
10/1/87-$3,930 1
Sovran Financial
Corporation
Norfolk, VA
($25,442)
First Bank of Marion
County
South Pittsburgh, TN
12/19/88 - $97
First National Bank
of Collierville
Collierville, TN
12/19/88-$47
1
This transaction
provided
were Tennessee-based,
U1
Sovran Financial
and one—Planters
with entry into the state of Kentucky.
Bank and Trust Company
Commerce
of Hopkinsville,
Union controlled
eleven subsidiary
with total assets of $182 million—was
banks when it was acquired
Kentucky-based.
in October
1987. Ten
subsidiaries
Interstate Banking Legislation by State: Southeast Compact
State
Description (The years in parentheses are the dates the laws were passed.)
Alabama
Reciprocal, twelve states and DC (AR, FL, GA, KY, LA, MD, MS, NC, SC, TN, VA, WV).
The in-state institution to be acquired must have been in existence at least five
years. The law became effective July 1, 1987 (1986).
Arkansas
Reciprocal, sixteen states and DC (AL, FL, GA, KS, LA, MD, MS, MO, NE, NC, OK, SC,
TN, TX, VA, WV). The effective date of the law is January 1, 1989 (1988).
District of
Columbia
Reciprocal, eleven states (AL, FL, GA, LA, MD, MS, NC, SC, TN, VA, WV) (1985). Permits
bank holding companies outside the preceding listed states to acquire existing DC
banking organizations, provided certain commitments are made regarding investments and operations in DC (1986).
Florida
Reciprocal, eleven states and DC (AL, AR, GA, LA, MD, MS, NC, SC, TN, VA, WV). The
in-state bank to be acquired must have been in existence at least two years (1984).
Under a 1972 law, NCNB and Northern Trust Corporation are grandfathered and can
make further in-state acquisitions.
Georgia
Reciprocal, ten states and DC (AL, FL, KY, LA, MD, MS, NC, SC, TN, VA). The in-state
bank to be acquired must have been in existence at least five years (1984). MD and
DC were added to the region effective March 13, 1987 (1987).
Kentucky
National, reciprocal. The in-state bank to be acquired must have been in existence
at least five years. Initially, there was a contiguous state requirement, but that was
dropped July 15, 1986 (1984).
Louisiana
National, reciprocal. The statute originally permitted bank holding company entry on
a reciprocal basis, but only by holding companies located in AL, AR, FL, GA, KY, MD,
MS, NC, OK, SC, TN, TX, VA, WV, and DC. The law became effective July 1, 1987
(1986). Regional restriction was dropped on January 1, 1989. Parallel legislation covers S&Ls.
Maryland
Reciprocal, fourteen states and DC (AL, AR, DE, FL, GA, KY, LA, MS, NC, PA, SC, TN,
VA, WV) (1985). For DE, VA, WV, and DC, the law became effective July 1, 1985. The
law became effective July 1, 1987, for the remaining states.
Mississippi
Reciprocal, thirteen states (AL, AR, FL, GA, KY, LA, MO, NC, SC, TN, TX, VA, WV). The
law became effective for the contiguous states of AL, AR, LA, and TN on July 1, 1988
(1986). The same statute specified that the region would be expanded to include the
remaining southeastern states effective July 1, 1990.
North Carolina
Reciprocal, thirteen states and DC (AL, AR, FL, GA, KY, LA, MD, MS, SC, TN, TX, VA, WV)
(1984).
South Carolina Reciprocal, twelve states and DC (AL, AR, FL, GA, KY, LA, MD, MS, NC, TN, VA, WV).
The law became effective January 1, 1986. The in-state bank to be acquired must
have been in existence at least five years (1984).
Tennessee
Reciprocal, fourteen states (AL, AR, FL, GA, IN, KY, LA, MD, MS, MO, NC, SC, VA,
WV). The banking organization to be acquired must have been in existence at least five
years (1985). National, reciprocal effective January 1, 1991.
Virginia
Reciprocal, twelve states and DC (AL, AR, FL, GA, KY, LA, MD, MS, NC, SC, TN, WV). The
in-state bank to be acquired must have been in existence at least two years (1985).
West Virginia
National, reciprocal. The law became effective January 1, 1988, and applies to both
bank holding companies and savings and loan holding companies. The in-state institution to be acquired must have been in existence for two years (1986).
Sources: Banking
52
Expansion
Reporter
( 1990, 7-10); King, Tschinkel, arid W h i t e h e a d (1989, 35-36).
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
Notes
c a t i o n s in M i s s i s s i p p i , T e n n e s s e e , T e x a s , L o u i s i a n a ,
' M a i n e e n a c t e d a n i n t e r s t a t e b a n k i n g law in 1975, b u t
Florida, Missouri, W i s c o n s i n , Kansas, a n d I n d i a n a .
the law h a d a reciprocity restriction. Out-of-state b a n k s
could not acquire M a i n e banks unless M a i n e
Florida b a n k i n g statutes a l l o w e d s t a t e w i d e branch-
banks
c o u l d a c q u i r e b a n k s l o c a t e d in t h e acquirer's h e a d q u a r -
i n g p r i v i l e g e s for its c o m m e r c i a l
ters s t a t e . T h e r e c i p r o c i t y r e s t r i c t i o n e f f e c t i v e l y pre-
L o u i s i a n a b a n k i n g law p e r m i t t e d s t a t e w i d e b r a n c h i n g
b a n k s in
1989.
v e n t e d a n y interstate a c q u i s i t i o n of M a i n e b a n k s until
for state-chartered b a n k s in ) u n e 1988. L a w m a k e r s pro-
a n o t h e r interstate b a n k i n g law was a d o p t e d . S u c h a law
v i d e d Mississippi-chartered b a n k s s t a t e w i d e b r a n c h i n g
was a d o p t e d by M a s s a c h u s e t t s legislators in 1982. The
rights o n July 1, 1989, s u b j e c t to m i n i m u m
laws g o v e r n i n g interstate b a n k i n g in t h e S o u t h e a s t are
r e q u i r e m e n t s for m u n i c i p a l i t i e s . In 1990 T e n n e s s e e
d i s c u s s e d in d e t a i l in t h e b o x on p a g e 52.
b a n k i n g law a l l o w e d state-chartered b a n k s to e s t a b l i s h
C o m m e r c i a l b a n k i n g t r a n s a c t i o n s in t h e S o u t h e a s t a r e
the focus of this article. T h e s t u d y i n c l u d e s transactions
in which t h e a c q u i r i n g o r g a n i z a t i o n or p r i n c i p a l m e r g e r
p a r t n e r is a c o m m e r c i a l b a n k h o l d i n g c o m p a n y ,
h o l d i n g c o m p a n y s u b s i d i a r y , or i n d e p e n d e n t
bank
bank.
C o m m e r c i a l b a n k c o n s o l i d a t i o n s with thrift i n s t i t u t i o n s
population
branch offices at a n y l o c a t i o n in a n y c o u n t y of t h e state.
4
D u r i n g m o s t of t h e six y e a r s u n d e r s t u d y ,
branching
laws as s p e c i f i e d b e l o w a p p l i e d to each of t h e states in
the Southeast.
( S e e n o t e 3 for a n e x p l a n a t i o n
of
s t a t e w i d e b r a n c h i n g rights g r a n t e d to s o u t h e a s t e r n
states e x c e p t G e o r g i a d u r i n g 1988, 1989, or 1990.)
Alabama.
are i n c l u d e d as well. Transactions i n v o l v i n g consolida-
Prior t o 1990 s t a t e - c h a r t e r e d
commercial
tions solely a m o n g thrift o r g a n i z a t i o n s are e x c l u d e d . Al-
b a n k s c o u l d e s t a b l i s h b r a n c h offices within t h e p a r e n t
so e x c l u d e d are transactions i n v o l v i n g c o m m e r c i a l b a n k
b a n k ' s h o m e c o u n t y . Local laws a n d g e n e r a l laws of lo-
p u r c h a s e s of b r a n c h offices, e i t h e r b a n k or thrift branch-
cal a p p l i c a t i o n a p p l i e d b e c a u s e state b a n k i n g s t a t u t e s
es, a n d c o n s o l i d a t i o n s i n v o l v i n g trust c o m p a n i e s . T h e
d i d n o t explicitly a d d r e s s b r a n c h i n g rights.
S o u t h e a s t as d e f i n e d h e r e i n c l u d e s A l a b a m a , Florida,
3
Florida.
Before 1989 a Florida-chartered b a n k c o u l d
Georgia, L o u i s i a n a , M i s s i s s i p p i , a n d T e n n e s s e e .
e s t a b l i s h b r a n c h e s w i t h i n t h e b o r d e r s of t h e p a r e n t
The S t a t e S u p e r i n t e n d e n t of B a n k i n g
bank's h o m e county.
authorized
Georgia.
statewide branching privileges to Alabama-chartered
C o m m e r c i a l b a n k s are still restricted
b r a n c h i n g within c o u n t y b o r d e r s . An e x c e p t i o n
b a n k s in a policy letter i s s u e d on M a y 31, 1990. T h e su-
to
has
p e r i n t e n d e n t c i t e d a M a y 22, 1990, d e c i s i o n b y t h e
b e e n m a d e for b a n k s in d e n s e l y p o p u l a t e d Fulton a n d
C o m p t r o l l e r of t h e Currency to a p p r o v e t h e a p p l i c a t i o n
D e K a l b c o u n t i e s . State-chartered c o m m e r c i a l b a n k s in
by T h e First N a t i o n a l B a n k of F l o r e n c e ,
o n e of t h e s e c o n t i g u o u s c o u n t i e s m a y e s t a b l i s h branch-
Lauderdale
e s in t h e o t h e r c o u n t y .
County, A l a b a m a (FNB Florence), t o e s t a b l i s h a branch
Louisiana.
b a n k in M u s c l e S h o a l s , C o l b e r t C o u n t y , A l a b a m a . Com-
B e f o r e 1988 s t a t e - c h a r t e r e d b a n k s (with
mercial b a n k s in A l a b a m a were restricted previously to
capital of $100,000 or m o r e ) c o u l d o p e n branch offices
branching within their h o m e c o u n t i e s b y local laws a n d
in p a r i s h e s in w h i c h t h e r e w e r e n o s t a t e - c h a r t e r e d
general laws of local a p p l i c a t i o n , a n d t h e limitation ap-
b a n k s . Also, n o t m o r e t h a n o n e b r a n c h (in a d d i t i o n to
p l i e d to L a u d e r d a l e a n d C o l b e r t c o u n t i e s . T h e superin-
b r a n c h e s in t h e p a r e n t b a n k ' s h o m e parish) c o u l d
t e n d e n t ' s d e c i s i o n for this A l a b a m a case was b a s e d on
o p e n e d in a n y o n e parish o t h e r t h a n t h e h o m e parish.
be
the fact that n a t i o n a l b a n k s a n d state-chartered savings
All b a n k s in t h e p a r i s h e s of Allen, C a l c a s i e u , C a m e r o n ,
a n d loan associations in A l a b a m a h a v e t h e authority to
or Jefferson D a v i s c o u l d e s t a b l i s h b r a n c h offices in any
e s t a b l i s h b r a n c h offices t h r o u g h o u t t h e state. That is,
o n e or m o r e of t h e o t h e r n a m e d p a r i s h e s .
state-chartered savings a n d loan associations in Alaba-
Mississippi.
m a are a u t h o r i z e d by A l a b a m a law t o d o w h a t e v e r federal savings a n d loan associations d o m i c i l e d in t h e state
p a r e n t b a n k : (a) 100 m i l e s from July 1, 1986, t h r o u g h
may d o . If a federal savings a n d loan association in Ala b a m a may branch statewide, an
June 30, 1987; (b) 150 m i l e s from July 1, 1987, t h r o u g h
Alabama-chartered
June 30, 1988-, (c) 200 m i l e s from July 1, 1988, t h r o u g h
savings a n d loan association may d o likewise. The
C o m p t r o l l e r of t h e C u r r e n c y h a d p r e v i o u s l y
June 30, 1989; a n d (d) t h e g e o g r a p h i c a l b o u n d a r i e s of
decided
t h e S t a t e of M i s s i s s i p p i o n a n d after July 1, 1989.
that national b a n k s c o u l d branch s t a t e w i d e b e c a u s e fed-
Tennessee.
eral savings a n d loan associations, w h i c h h e l d essential-
t h e c o u n t y w h e r e its principal office was l o c a t e d .
All six states p e r m i t t e d their state-chartered b a n k s
S p e c i f i c a l l y , u n d e r A l a b a m a ' s E q u a l P o w e r s Act,
to e s t a b l i s h n e w b r a n c h e s in t h e case of e m e r g e n c y or
1975, a s t a t e -
failure of existing b a n k s . S e e A m e l a n d K e a n e (1986).
c h a r t e r e d b a n k in A l a b a m a is a u t h o r i z e d t o exercise
any p o w e r s that a n a t i o n a l b a n k d o m i c i l e d in A l a b a m a
5
F o r a m o r e d e t a i l e d d i s c u s s i o n of legislation p e r t a i n i n g
to i n t e r s t a t e b a n k i n g s e e King, T s c h i n k e l , a n d White-
may exercise. This i n c l u d e s t h e p o w e r t o e s t a b l i s h
h e a d (1989).
branch offices. The A l a b a m a S u p e r i n t e n d e n t of Banks,
therefore, a d v i s e d state-chartered b a n k s that t h e y m a y
Before 1990 a T e n n e s s e e - c h a r t e r e d com-
mercial b a n k c o u l d n o t e s t a b l i s h b r a n c h e s o t h e r t h a n in
ly t h e s a m e p o w e r s of a n a t i o n a l b a n k s , c o u l d d o so.
S e c t i o n 5-5A-18.1, C o d e of A l a b a m a
C o m m e r c i a l b a n k s c o u l d e s t a b l i s h branch
b a n k s w i t h i n t h e f o l l o w i n g a p p l i c a b l e r a d i u s from t h e
6
T h e s e g r a n d f a t h e r p r o v i s i o n s of t h e D o u g l a s A m e n d -
b r a n c h s t a t e w i d e b e c a u s e n a t i o n a l b a n k s , as w e l l as
m e n t a c c o u n t for a few large regional o r g a n i z a t i o n s t h a t
state-chartered savings a n d loan associations, are per-
o p e r a t e d from 1956 to 1985, w h e n t h e n a t i o n ' s S u p r e m e
m i t t e d t o d o so. Previous d e c i s i o n s by t h e C o m p t r o l l e r
Court ruled that regional interstate b a n k i n g c o m p a c t s
of the Currency i n v o l v e d n a t i o n a l b a n k s ' branch appli-
d i d n o t v i o l a t e a n t i d i s c r i m i n a t i o n p r o v i s i o n s of t h e Con-
Digitized
F E Dfor
E R AFRASER
L R E S E R V E B A N K O F ATLANTA
53
stitution. E x a m p l e s of such cross-state o r g a n i z a t i o n s are
$35.5 m i l l i o n in total assets a n d was a c q u i r e d t h r o u g h a
I n t e r s t a t e B a n c o r p in t h e W e s t a n d First B a n k S y s t e m
d e b t previously contracted situation.
a n d Norwest in t h e u p p e r M i d w e s t .
10
m u m p e r n a m e d a c c o u n t c o v e r e d b y t h e F e d e r a l De-
sidiary b a n k s . In 1985 SunTrust Banks, Inc., was f o r m e d
p o s i t I n s u r a n c e C o r p o r a t i o n is $100,000. T h e s e d e p o s i t s
as a b a n k h o l d i n g c o m p a n y w i t h T r u s t C o m p a n y of
t e n d t o b e w i t h d r a w n q u i c k l y w h e n a b a n k i n g organiza-
G e o r g i a , Atlanta, G e o r g i a , a n d S u n B a n k s , Inc., of Orlan-
tion's financial difficulties, p e r c e i v e d or actual, b e c o m e
d o , Florida, as b a n k s u b s i d i a r i e s . Also in 1985 First Wa-
k n o w n to t h e p u b l i c . P u r c h a s e d f u n d s m a y a l s o b e with-
chovia C o r p o r a t i o n was f o r m e d as a b a n k
drawn w h e n interest rates p a i d on d e p o s i t s b y t h e of-
c o m p a n y w i t h t w o s u b s i d i a r y b a n k s . T h e y w e r e Wa-
fering b a n k d r o p significantly relative to t h e rates p a i d
c h o v i a C o r p o r a t i o n of W i n s t o n - S a l e m , N o r t h C a r o l i n a ,
by c o m p e t i t o r s . Core d e p o s i t s , on t h e o t h e r h a n d , are
a n d First A t l a n t a C o r p o r a t i o n of A t l a n t a , G e o r g i a . For
n o n b r o k e r e d FDIC-insured a c c o u n t s with b a l a n c e s un-
b o t h f o r m a t i o n s , total assets h e l d by t h e t w o s u b s i d i a r y
d e r $100,000.
holding
b a n k s were roughly e q u a l , b u t over t i m e SunTrust's
Georgia o p e r a t i o n s a n d First W a c h o v i a ' s North Carolina
F o r a fuller d i s c u s s i o n of t h e s e m o t i v a t i o n s for b a n k ac-
o p e r a t i o n s h a v e b e c o m e d o m i n a n t . This s t u d y , there-
q u i s i t i o n s a n d mergers, s e e H u n t e r a n d Wall (1989).
9
presumably
e q u a l h e a d q u a r t e r s for t h e new o r g a n i z a t i o n ' s t w o sub-
b a l a n c e s of roughly $100,000 or m o r e . T h e legal maxi-
8
Two interstate transactions were p u b l i c l y a n n o u n c e d as
m e r g e r s of e q u a l s , w i t h i n d i v i d u a l a n d
P u r c h a s e d f u n d s consist of certificates of d e p o s i t s with
fore, views t h e SunTrust a n d First W a c h o v i a transactions
T h r e e t r o u b l e d d e p o s i t o r y i n s t i t u t i o n s in Florida were
as a c q u i s i t i o n s of Florida a n d G e o r g i a b a n k s b y G e o r g i a
a c q u i r e d b y N e w York b a n k h o l d i n g c o m p a n i e s u n d e r
a n d North C a r o l i n a b a n k h o l d i n g c o m p a n i e s , respec-
p r o v i s i o n s of t h e Garn-St G e r m a i n Act of 1982 or t h e
tively.
C o m p e t i t i v e E q u a l i t y in B a n k i n g Act of 1987. C i t i c o r p
a c q u i r e d a failed thrift a n d a t r o u b l e d c o m m e r c i a l b a n k
11
A m e r g e r b e t w e e n Citizens a n d S o u t h e r n C o r p o r a t i o n in
in 1984 a n d 1988, r e s p e c t i v e l y , a n d C h a s e M a n h a t t a n
G e o r g i a a n d S o v r a n F i n a n c i a l C o r p o r a t i o n in Virginia
C o r p o r a t i o n p u r c h a s e d a t r o u b l e d c o m m e r c i a l b a n k in
was a p p r o v e d in 1990, after t h e e n d of o u r s a m p l e peri-
1986.
o d . This m e r g e r was b i l l e d as a m e r g e r of e q u a l s . Al-
First A m e r i c a n
B a n k s h a r e s , Inc., a District
of
C o l u m b i a h o l d i n g c o m p a n y , r e c e i v e d a p p r o v a l t o ac-
though one organization almost always
dominates
t r a n s a c t i o n s b i l l e d as m e r g e r s of e q u a l s , it is n o t yet
q u i r e B a n k of E s c a m b i a , N.A., P e n s a c o l a , F l o r i d a , in
p o s s i b l e t o d i s c e r n w h i c h o r g a n i z a t i o n will p r e v a i l or
F e b r u a r y 1989. This a c q u i s i t i o n was n o t m e n t i o n e d in
w h e t h e r t h i s is in fact a m e r g e r w h e r e b o t h organiza-
t h e t e x t b e c a u s e B a n k of E s c a m b i a p o s s e s s e d
t i o n s will b e e q u a l .
only
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Holding
C o m p a n y E x p a n s i o n , a n d Interstate Banking." Issues in
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the
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tive A n n u a l Pocket Part. St. Paul, M i n n . : W e s t PublishAnnotated.
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G o u d r e a u , R o b e r t E., a n d B. F r a n k K i n g .
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1989-1990 C u m u l a t i v e S u p p l e m e n t . R o c h e s t e r , N.Y.:
"Recovering
B a n k Profitability: S p o i l e d Again by Large Banks' Loan
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Economic
Review 75 (May/|une 1990): 30-43.
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T h e Lawyers C o o p e r a t i v e P u b l i s h i n g C o m p a n y , 1990.
Official Code of Georgia,
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S u p p l e m e n t . Charlottesville, Va.: T h e M i c h i e C o m p a ny, 1990.
Tennessee
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vations: A Review of t h e E v i d e n c e a n d an E x a m i n a t i o n
1987-1990 S u p p l e m e n t . C h a r l o t t e s v i l l e , V a . : T h e
of Key Target Bank Characteristics." Federal R e s e r v e
M i c h i e C o m p a n y , 1990.
54
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Book Review
The Energy Crisis and the American Political
Economy:
Politics and Markets in the Management
of Natural
Resources
by Franklin Tugwell.
Stanford, Calif.: Stanford University Press, 1988.
294 pages. $32.50.
E
ven before Iraq's invasion of Kuwait
on August 2, 1990, most Americans
could easily recall the trauma of the
energy crisis during the 1970s and early 1980s.
Recent events have no d o u b t reminded many
p e o p l e of the skyrocketing oil prices and long
lines at gasoline p u m p s that accompanied the
scarcity of oil s u p p l i e s d u r i n g that p e r i o d .
However, the events that led to the 1970s' crisis and the circumstances surrounding it may
not be remembered in detail or clearly understood even by those it most seriously affected.
In The Energy Crisis and the American Political
Economy, Franklin Tugwell has p r o v i d e d an
excellent review of the events a n d circumstances leading to the energy crisis that began in the winter of 1973-74, as well as the
nation's reactions to it, especially the government's largely unsuccessful a t t e m p t s to
alleviate its impacts. The author, who is Professor of G o v e r n m e n t at P o m o n a C o l l e g e
a n d Claremont Graduate School, also draws
some worrisome conclusions about responses
if American oil supplies should again b e restricted. In short, he believes that the country's dealings with the first crisis left it little
better prepared to deal with a second one.
56
In part o n e of his four-part book, Tugwell
traces the evolution of both public a n d private efforts to deal with competition within
the major energy regimes: coal, oil, natural
gas, electricity, and nuclear power. The second section contains a chronology of the dev e l o p m e n t of t h e e n e r g y crisis a n d t h e
country's response to it. In the third part Tugwell examines changes in energy's political
economy during the crisis and public policy's
role in shaping those developments. Finally,
the author looks at current shortcomings associated with the U.S. system of economic governance—specifically, the failure to achieve a
lasting solution to the energy crisis—and suggests other arrangements he believes would
prove more effective in d e a l i n g with such
problems.
Until t h e 1970s' crisis t h e major energy
forms used in the United States bore little relationship to each other in either private ownership or public policy. The author looks in
detail at the development of the primary energy regimes and the ways in which each one
has r e s p o n d e d to its particular p r o d u c t i o n
a n d marketing p r o b l e m s . These responses
have involved both private arrangements and
E C O N O M I C R E V I E W , N O V E M B E R / D E C E M B E R 1990
public intervention designed to moderate
market forces. Tugwell presents evidence to
show that each fuel type developed its own
political subsystem in which industry representatives teamed up with specialized congressional and bureaucratic groups to shape
public policies. Given this assemblage of distinct policy-making groups, often l a b e l e d
"iron triangles" because of the rigidly closed
system within which policies were concocted,
it is not surprising that, prior to the oil embargo, there was no attempt to develop a coherent public policy for the energy system as a
whole.
Government intervention in the coal industry never worked well for long periods because of the geographical dispersion and
independence of producers, who were unable
to agree among themselves and with m i n e
workers on the objectives of coal policy. As a
result, supply could not be controlled sufficiently to manage markets.
By contrast, the oil industry was amenable
to government regulations partly because of
its early monopolistic control, which allowed
industry leaders to exercise great influence in
defining problems and designing regulatory
solutions. Supply control, with the objective
of supporting prices, was always a clearly understood goal of oil industry leaders.
Granted monopoly status because of its
cumbersome, costly delivery system, the natural gas industry experienced strong consumer representation in policy-making from
the outset. Consumers' predominant influence forged regulations that kept prices low
and stymied investment and development,
which give low returns to producers.
The electricity industry was set up early on
as a system of legal monopolies in local service districts. Producers' relationships with
regulatory authorities were cooperative rather
than conflictual, and authorities a d o p t e d a
strong promotional attitude toward electric
power. This promotion encouraged growth
that provided increasing scale economies,
benefiting investors, managers, and consumers alike. Although initially state government regulation dominated electrical supply,
federal government intervention expanded
when supply networks reached beyond state
boundaries, particularly when atomic energy
Digitized
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R E S E R V E BANK O F ATLANTA
began to be adopted as a power source. However, the structure of the electricity regime
m a d e it unusually vulnerable to the energy
crisis in 1973, when the relative tranquility of
proprietary regulation was upset by emerging
adversarial relationships with environmentalists, antinuclear activists, and disgruntled consumers.
By the early 1970s each energy regime had
developed a somewhat stable set of procedures for governing its particular piece of the
industry. When the energy crisis struck, each
energy type was, for different reasons, vulnera b l e to t h e s e v e r e market a d j u s t m e n t s
caused by rapidly rising oil prices. Consequently, the nation's response to the crisis
was heavily influenced by the lack of uniformity among regulatory procedures for the various fuel types.
As Tugwell reminds readers, the oil embargo engineered by the Arab members of the
Organization of Petroleum Exporting Countries (OPEC) followed the outbreak of the Yom
Kippur War in 1973. The oil ministers of the
Arab oil-exporting countries chose to draw attention to the Arab cause by imposing production cutbacks in late 1973. Within the next
few months, the supply of oil reaching international markets fell by 15 percent and the
price of world oil jumped from $3 to $12 per
barrel. The impact on the world economy was
estimated to be equivalent to a $100 billion
tax, claimed by some to be the largest reallocation of income in history.
The embargo struck a particularly telling
blow to the U.S. economy, Tugwell contends,
partly because it occurred in the midst of other problems. During the years before the embargo, the United States had suffered from
shortages of natural gas and some petroleum
products because of price ceilings that limited
producers' incentive to supply those products. Escalating inflation accompanying the
government's large expenditures for the Vietnam War and the Great Society's domestic
programs had led President Richard Nixon to
institute an economywide wage and price
freeze in 1971, two years before the oil embargo. Tugwell claims that the freeze aggravated
t h e shortages, e s p e c i a l l y in energy a n d
petroleum products, but that the oil embargo
and the public's resentment of its effects
57
made it politically impossible to remove energy price controls even when general price
controls were scrapped. In fact, he argues,
the Nixon administration's price control programs set the stage for the subsequent elaborate regulatory system that involved the
g o v e r n m e n t ever more d e e p l y in energy
matters.
Although the government had intervened
in varying degrees in each energy regime prior to the Nixon era, coal and oil were distributed largely under a market system until
price controls were imposed in 1971. Tugwell
contends that the measures adopted to manage shortages—including price controls, supp l y a l l o c a t i o n s , e n t i t l e m e n t s , a n d vast
expansions in the government's regulatory
functions—created a broad set of stakeholders who, feeling threatened by a return to the
market allocation system, became additional
political forces to b e reckoned with in attempting to formulate energy policy.
All of these factors contributed to the set of
conditions that Tugwell labels the energy crisis. He enumerates several major elements of
the crisis: the abrupt restrictions of imported
oil supplies, on which the nation had become
dependent; rapidly dwindling domestic oil reserves, reflecting a century of growing usage; a
lack of readily available alternative energy
sources; the vast transfers of wealth from consumers to foreign oil producers because of
the rising cost of imported oil; and the United
States' virtual helplessness in thwarting embargo organizers' aims.
Although several energy policies emerged
from the turmoil, Tugwell argues that these
typically moved further and further from the
actions needed to alleviate the energy crisis,
basically because the political process was
d e a d l o c k e d by m u l t i p l e special interest
groups. Moreover, from the mid-1970s onward
this stalemate has tended to stymie most political efforts to devise energy policy. President Carter promoted a host of new policies
designed to reduce imports, increase energy
use efficiency, and distribute more equitably
the burden of high energy prices. Though Tugwell endorses these as goals, he argues that
Carter essentially could not overcome the
stalemate and in the end merely accelerated
the process of deregulation.
58
Tugwell attributes to the Reagan administration the final dismantling of petroleum
price and allocation controls. Despite that administration's vigorous efforts to abolish the
Department of Energy and move to freer energy markets, limited headway was made in
further reducing the government's role in the
energy regimes, Tugwell reports, because
legislators proved reluctant to abandon programs so recently brought into existence
through hard-won compromises. Such measures as environmental regulations impinging
on energy development and programs to help
poor people pay for increased costs of energy
continued.
The author acknowledges a number of accomplishments during America's decade-long
struggle with the energy crisis: the improved
'Although several energy policies emerged
from the .. . [1970s' crisisJ, Tugwell argues
that these typically moved further and further from the actions needed to alleviate the
energy crisis, Basically because the political
process was deadlocked by multiple special
interest groups."
fuel efficiency of autos and trucks, reductions
in home heating fuel use resulting from numerous conservation measures, reduced energy intensity in the industrial sector, and
considerable substitution of other energy
sources for oil. He points out, however, that
many of these achievements occurred in spite
of the energy policies enacted, which often int e n d e d different results. For example, one
major energy policy objective dating from the
early days of the second Nixon administration
in 1974 was to reduce the country's dependence on imported oil and restore energy
self-sufficiency. The Emergency Petroleum Allocation Act, which Nixon signed into law in
late 1973, was intended to protect consumers
from rising oil prices. Price controls partially
succeeded in holding crude oil prices down
but at the same time discouraged domestic
production, leading to an increase in oil im-
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
ports relative to what they otherwise would
have been. In fact, from 1973 to 1977 oil imports had risen 31 percent, and the same Arab
countries that had e m b a r g o e d the United
States were providing a large share of the total.
Largely because of sharp price increases in
1973 and again in 1979-80, energy use patterns changed and efficiency increased, eventually c u t t i n g i n t o the growth in energy
consumption. Had prices risen faster, domestic production might have increased more
quickly and by a greater amount; consumption u n d o u b t e d l y would have grown less
rapidly. These events would have hastened
the restoration of the supply-demand balance
that eventually brought prices under control.
In Tugwell's opinion, one of the most obvious impacts of national energy policy was a
"According to Tugwell, a major reason for
the relative ineffectiveness of the energy
regulatory structure was the political rift
between energy producers and energy consumers."
quite unintended transfer of wealth across national borders as well as from consuming to
producing areas within the United States. As
U.S. oil imports increased, Tugwell states,
OPEC countries received an additional estimated $1 billion to $6 billion annually between 1975 and 1979 from U.S. consumers. He
points out that low-income people were particularly hard hit by these price shocks, as industries laid off low-wage earners or cut their
pay in an effort to restore industry competitiveness and pave the way for economic recovery. In addition, in an attempt to deal with
the energy crisis, the federal government established a large regulatory apparatus that imposed a costly administrative burden on the
private sector. Regulations intended to protect consumers from paying high prices for oil
and to prevent owners of domestic petroleum
resources from reaping unearned returns from
Digitized
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the price j u m p extended in part from 1972
through 1981. The author argues that the acc o m p l i s h m e n t s of t h e s e regulations were
mixed at best.
According to Tugwell, a major reason for
the relative ineffectiveness of the energy regulatory structure was the political rift between
energy producers and energy consumers. This
division was c o m p o u n d e d by the disagreement between the executive and legislative
branches of government concerning the procedures and policies needed. In effect, each
group was powerful enough to thwart the other's initiatives. It is perhaps because energy
matters affect the great cross section of the
country in such an immediate and conspicuous manner that energy constituent groups
became so active and so entrenched in their
positions that compromise ultimately proved
impossible. An impasse developed on the
key issues of petroleum and natural gas price
regulation. Despite the Reagan administration's strong efforts to rid energy of government controls, the stalemate was eventually
resolved only by the passage of time, which
brought reduced consumption of petroleum,
increased supplies, and the de facto emergence of world prices in U.S. energy markets.
Tugwell states: "The decision to terminate
regulation was the result neither of 'principled' choices by decision makers nor of political consensus, but of a persistent stalemate in
the body politic that made this the only possible outcome. It was, if you will, deregulation
by default."
Looking ahead, the author contends that
another energy crisis is almost a foregone conclusion. He sees little hope that the U.S. political system will d o more than repeat "the
cycle of failure" that characterized the nation's
handling of the 1973 energy crisis. As before,
he expects that the same powerful interest
groups will become intent on protecting their
constituencies' interests at the expense of the
common good.
Tugwell's bleak outlook for the ability of
the American democratic process to handle
crises leads him to examine alternative systems for the management of economic affairs.
He asserts that a government that is weak, divided, and easily influenced by special interest groups, as America's increasingly appears
59
to be, can do little to remedy the inefficient
distortions of economic activity and waste of
resources that result from wild market fluctuations. Such a government, he states, can int e r v e n e in m a r k e t s o n l y on an a d hoc,
temporary basis, following no consistent doctrine or objective except to provide immediate c o m p e n s a t i o n to the most influential
injured claimants. This situation, Tugwell contends, seriously threatens continued economic progress in an advanced industrial society.
The alternative he favors is "a system of
planned markets," which he describes as "an
arrangement in which the government accepts
responsibility for the operation of the economic system and the values it promotes, but
wherever possible eschews detailed regulation or micromanagement, instead relying on
competitive, or market-like, processes. It does
so by consciously and continuously setting
the terms for competition . . . and enforcing
them, while at the same time carefully attending to the needs of those who are hurt as a result." This p r o p o s e d system is n e e d e d ,
Tugwell asserts, b e c a u s e the f o u n d e r s of
America's democratic system failed to foresee
that corporate organization would b e c o m e
dominant in the political process and that the
government would be swamped by multiple
demands for access to the policy-making process and for security and at the same time be
held responsible for managing the details of
economic activity.
In the author's view, this planned market
system w o u l d e n a b l e the g o v e r n m e n t to
make decisions and direct resource allocations in a manner that would generate the
maximum benefit to society as a whole while
avoiding the paralysis that tends to occur in
policy-making when some interest groups are
powerful enough to block actions that benefit
other groups. In the case of the 1970s' energy
crisis, such a system presumably would have
allowed fuel prices to rise; then taxes or assessments on producers would have been
levied to remove windfall profits and those
revenues used to alleviate the unusual hardships low-income consumers suffered as a result of the higher prices for gasoline, heating
oil, and other necessary energy-based items.
Tugwell gives short shrift to the increased
hardships that unhampered price increases
60
would have imposed on limited-resource consumers and businesses, who would have had
to pay even higher prices in the short run and
suffer the longer-term c o n s e q u e n c e s of a
more severe economic contraction.
The author ignores the argument that the
policy of holding down domestic oil prices,
even though only partially successful, produced some major stabilizing benefits in the
short term. He also fails to address the destabilizing influences on industry production and
i n v e s t m e n t that typically result from wild
price swings, such as those that occurred for
oil during the 1970s and 1980s. The rush to expand production that accompanied the jump
in domestic crude oil prices from $9 to $32 per
barrel from 1978 to 1981 sharply escalated
costs of drilling equipment and resources as
producers, many inexperienced, scrambled to
take advantage of the b o o m . The d r o p in
crude oil's price to $12.50 per barrel in 1986,
when expanded oil supplies met declining
demand, caused massive financial losses from
which oil-producing regions have yet to recover. If policy had kept a firmer lid on oil prices,
some financial losses from such high-cost expansion might have been avoided.
Tugwell fails to bolster his case by citing
examples where planned markets are working
or have worked to accomplish the objectives
he claims have not been obtained through the
U.S. political process. He also does not make
it clear what mechanism would ensure that a
p l a n n i n g group w o u l d , in fact, a c h i e v e a
planned market system. _
There are reasons to believe that Iraq's invasion of Kuwait will not bring about the replay of the mistakes of the 1970s that Tugwell
forecasts. The experience of having survived
the 1973-74 embargo appears to be alleviating the public panic that was widespread during the previous crisis, when energy supplies
were severely restricted and sometimes could
not be obtained. This time there is a clear villain manifest in the country of Iraq and its
leader Saddam Hussein. During the 1970s' crisis it was commonly suspected that the major
oil companies were in league with the OPEC
cartel, precipitating the crisis in order to increase their profits. That mind-set produced
immense public resentment of fuel price increases and generated measures intended to
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
prohibit domestic fuel costs from rising. So
far in the Iraq-Kuwait conflict, the public has
neither d e m a n d e d policies to restrict price
increases nor asked for special supply management programs, even though domestic
energy producers and suppliers stand to reap
one-time windfall gains.
In addition to a changed public attitude,
other factors may cause the 1990s' energy
policy to differ from that resulting from the
1973-74 experience. A large government-held
strategic oil reserve, not a v a i l a b l e in the
1970s, would provide some cushion should
oil imports be sharply curtailed. With that reserve, oil consumers now have a d d i t i o n a l
time to make adjustments. Moreover, prices
had already been rising before Iraq's invasion, setting the forces in motion to begin to
reduce d e m a n d . Furthermore, substitutes
(primarily natural gas and coal) are now more
readily available, and some users are already
equipped to switch to these alternate fuels.
In addition, thanks to the earlier experience
with high energy prices, effective conservation measures have been developed that can
help counter possible oil market shortfalls.
A l t e r n a t e fuels a n d s u b s t i t u t e energy
sources are less remote in 1990 than they
were during the 1970s. The removal of price
controls on natural gas has encouraged that
industry to expand so that it can now assume
a significantly larger share of the energy market. The potentially higher returns to gas producers since price decontrol have stimulated
FEDERAL R E S E R V E B A N K O F ATLANTA
renewed drilling of gas wells as well as increased capture and use of the natural gas
that is a joint product from oil wells. As oil
prices rise, the distribution of gas, a more
costly procedure than that for oil, could become increasingly profitable. Abundant nearby gas supplies in the United States, the Gulf
of Mexico, and Canada now help bolster energy security over the long run.
Other energy sources—such as wind, solar
heat, and biomass—are closer to a dependable availability for common usage in 1990
than they were in the 1970s. Thanks to crash
research p r o g r a m s i n s t i t u t e d d u r i n g t h e
1970s, progress in harnessing these energy
forms could now proceed more rapidly—after
having essentially ceased during the 1980s
when oil prices d r o p p e d — i n the event that
higher energy prices seem likely to be sustained.
Overall, Tugwell's book provides a worthwhile look at the history of the energy crises
of the 1970s. Although the book may provoke
readers to think more critically about U.S. energy policy, readers have reason to be skeptical a b o u t the p u b l i c policy prescriptions
Tugwell espouses.
Gene D. Sullivan
The reviewer is a research
Fed's research
officer in the regional section of the
Atlanta
department.
61
Index for 1990
AGRICULTURE
ECONOMIC POLICY
Book Review: The Energy Crisis and the American
Political Economy by Franklin Tugwell
G e n e D. Sullivan, November/December, 56
"Changes in the Agricultural Credit Delivery
System"
G e n e D. Sullivan, January/February, 12
Book Review: Presidential Economics: The Making
of Economic Policy from Roosevelt to Reagan and Beyond by Herbert Stein
"What's Behind Milk Price Movements?"
G e n e D. Sullivan, January/February, 34
ECONOMICS PROFESSION
BOOK REVIEWS
The Economics of Education and the Education of an
Economist by Mark Blaug (New York: New York
University Press, 1987)
Bobbie H. McCrackin, January/February, 42
The Energy Crisis and the American Political Economy by Franklin Tugwell (Stanford, Calif.: Stanford University Press, 1988)
G e n e D. Sullivan, November/December, 56
High Tech, Low Tech, No Tech: Recent Industrial and
Occupational Change in the South by William W.
Falk and Thomas A. Lyson (Albany, N.Y.: State
University of New York Press, 1988)
Gene D. Sullivan, July/August, 50
The Making of an Economist by Arjo Klamer and
David Colander (Boulder, Colo.: Westview
Press, Inc., 1990)
William Roberds, September/October, 44
Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond, 2d revised
edition, by Herbert Stein (Washington, D.C.:
American Enterprise Institute for Public Policy
Research, 1988)
Mary Susan Rosenbaum, May/June, 44
The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered by George J. Benston (New York: Oxford
University Press, 1990)
Larry D. Wall, March/April, 41
ECONOMIC HISTORY
"Lenders of the Next-to-Last Resort: Scrip Issue in Georgia during the Great Depression"
William Roberds, September/October, 16
"Lessons from the Panic of 1907"
Ellis W. Tallman and Jon R. Moen,
May/June, 2
62
Mary Susan Rosenbaum, May/June, 44
Book Review: The Making of an Economist by Arjo
Klamer and David Colander
William Roberds, September/October, 44
EDUCATION
Book Review: The Economics of Education and the
Education of an Economist by Mark Blaug
Bobbie H. McCrackin, January/February, 42
ENERGY
Book Review: The Energy Crisis and the American
Political Economy by Franklin Tugwell
Gene D. Sullivan, November/December, 56
EXCHANGE RATES
"Flexible Exchange Rates: An Idea Whose
Time Has Passed?"
Joseph A. Whitt, Jr., September/October, 2
"Inflation and the Dollar Index"
Karen R. Hunter, September/October, 32
FINANCIAL INSTITUTIONS
Book Review: The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited
and Reconsidered by George J. Benston
Larry D. Wall, March/April, 41
"Capital Requirements for Interest-Rate and
Foreign-Exchange Hedges"
Larry D. Wall, John J. Pringle, and James E.
McNulty, May/June, 14
"Determinants of De Novo Bank Performance"
William C. Hunter and Aruna Srinivasan,
March/April, 14
"Employment in the World's Largest Banks"
William C. Hunter and Stephen G. Timme,
January/February, 2
E C O N O M I C REVIEW, N O V E M B E R / D E C E M B E R
1990
"Lenders of the Next-to-Last Resort: Scrip Issue in Georgia during the Great Depression"
William Roberds, September/October, 16
"Lessons from the Panic of 1907"
Ellis W. Tallman and Jon R. Moen,
May/June, 2
"Recovering Bank Profitability: Spoiled Again
by Large Banks' Loan Problems"
Robert E. Goudreau and B. Frank King,
May/June, 30
"Southeastern Interstate Banking and Consolidation: 1984-89"
Robert E. Goudreau and Larry D. Wall,
November/December, 32
FINANCIAL INSTRUMENTS
"Capital Requirements for Interest-Rate and
Foreign-Exchange Hedges"
Larry D. Wall, John J. Pringle, and James E.
McNuIty, May/June, 14
"Covered Call Options: A Proposal to Ease
LDC DebtSteven P. Feinstein and Peter A. Abken,
March/April, 2
INTERNATIONAL ECONOMICS
"Covered Call Options: A Proposal to Ease
LDC DebtSteven P. Feinstein and Peter A. Abken,
March/April, 2
"Inflation and the Dollar IndexKaren R. Hunter, September/October, 32
"Flexible Exchange Rates: An Idea Whose
Time Has Passed?"
Joseph A. Whitt, Jr., September/October, 2
"Recent Views of Viewing the Real Rate of InterestRosemary Thomas Cunningham and
Thomas J. Cunningham, July/August, 28
LABOR FORCE
Book Review: High Tech, Low Tech, No Tech: Recent Industrial and Occupational Change in the South
by William W. Falk and Thomas A. Lyson
Gene D. Sullivan, July/August, 50
"Fewer Older Men in the U.S. Work Force:
Technological, Behavioral, and Legislative
Contributions to the DeclineJon R. Moen, November/December, 16
FORECASTING
MIGRATION
"Forecasting U.S. GNP at Monthly Intervals with
an Estimated Bivariate Time Series Model"
Peter A. Zadrozny, November/December, 2
"Measuring Interstate MigrationWilliam J. Kahley, March/April, 26
INFLATION
REGIONAL ECONOMICS
"Inflation and the Dollar Index"
Karen R. Hunter, September/October, 32
INTEREST RATES
Book Review: High Tech, Low Tech, No Tech: Recent Industrial and Occupational Change in the South
by William W. Falk and Thomas A. Lyson
G e n e D. Sullivan, July/August, 50
"Measuring Interstate MigrationWilliam J. Kahley, March/April, 26
"Capital Requirements for Interest-Rate and
Foreign-Exchange Hedges"
Larry D. Wall, John J. Pringle, and James E.
McNulty, May/June, 14
SAVING
"Innovations in Modeling the Term Structure
of Interest Rates"
Peter A. Abken, July/August, 2
"Measuring the Personal Savings Rate: Some
Technical Perspectives"
R. Mark Rogers, July/August, 38
"Recent Views of Viewing the Real Rate of Interest"
Rosemary Thomas Cunningham and
Thomas J. Cunningham, July/August, 28
FEDERAL R E S E R V E B A N K O F ATLANTA
63
The Federal Reserve Bank of Atlanta
will sponsor a banking conference
THE BANKING INDUSTRY:
J H E NEX J
DECADE
IS HERE
Rules, Risk, Reform
The conference program will include interactive
panel discussions as well as several featured speakers:
Former Senator William Proxmire
Governor Wayne Angell, Federal Reserve Board
David Lascelles, Banking Editor of Financial Times
William Taylor, Director, Banking Supervision and Regulation,
Federal Reserve Board
March 19-20,1991
Westin Peachtree Plaza
Atlanta, Georgia
For information and registration,
call Ms. Jess Palazzolo at 404/521-8747
Economic
Review
Federal Reserve Bank of Atlanta
104 Marietta St, N.W.
Atlanta, Georgia 30303-2713
Address Correction Requested
Bulk Rate
U.S. Postage
PAID
Atlanta, Ga.
Permit 292
@FedFRASER